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					Public Disclosure Authorized
                                                                          Damnist eof
                                                                 TheWorldBn
                                                               FaROMCIALUSE ONLY




                                                                                                            Report No. P-4224-CE
Public Disclosure Authorized




                                                           REPORT AND RECOMMENDATION

                                                                          OF THE

                                                                 PRESIDENT OF THE

                                                   INTERNATIONAL DEVELOPMENTASSOCIATION

                                                                          TO THE

                                                               EXECUTIVE DIRECTORS
Public Disclosure Authorized




                                                                           ON A

                                                    PROPOSED CREDIT OF SDR 11.3           MILLION

                                                                          TO THE

                                               DEMOCRATIC SOCIALIST REPUBLIC OF SRI LANKA

                                                                          FOR A

                                                        MUNICIPAL MANAGEMENT
                                                                           PROJECT



                                                                  April     24,   1986
Public Disclosure Authorized




                               This document has a restricteddistributionand may be used by recipientsonly in the performance
                               of their official
                                               duties. Its contents may not otherwisebe disclosedwithouLWorld Bankauthorization.
                                 CURRENCY
                                        EQUIVALENTS

                      Currency Unit              Sri Lanka Rupee
                           US$ 1.00          =   SL Re 28.0
                           SL Re 1.00            US$ 0.036



                          ABBREVIATIONSANDACRONYMS

CEB     -   Ceylon Electricity Board
CHBP    -   Center for Housing, Building and Planning
CITP    -   ConstructionIndustry Tra'ning Project
CM      -   Colomibo Mhnicipal     Council
ICTAD   -   Institutefor Construction Industry Training and Development
LGTRI   -   Local Government Training and Research Institute
LLDF    -   Local Loan Development Fund
ILGHC   -   Ministry of Local Government, Housing and Construction
NEDA    -   National Housing Development Authority
NIBM    -   National Institute of Business Nanagenent
SLIDA   -   Sri Lanka Institute of Development Administration
UDA     -   Urban Development Authority
ULAs    -   Urban Local Authorities
UPU     -   UrbanProgram Unit
WDB     -   NationalWater Supply and Drainage Board



                                     FISCAL YEAR

                           January     1 - December 31
                                                                        FOR OMCLAL USE ONLY




                                             SRI LANKA

                                                 PROJECT
                                NUNIr-PAL MANAGEMENT


                                 Creditand ProiectSumsarY

Borrower:                    Socialist
                    Democratic        Republicof Sri Lanka

Amount:             SDR 11.3millicn (US$13.0million equivalent)

Terms:              Standard

Project
Description:        The objectives the project are to support the Government
                                      of
                    of Sri Lanka's sectorpolicy adjustment          process and
                    strengthen   the capacityof the Ministryof Local Government,
                    Housing and Construction      (MLGUC)for improvingthe
                    managerial, financial     and service delivery performance of
                    urban local authorities     (ULAs). The project supportsthe
                    Goverment's    strategy   of further decentralization       of
                    authority   by developing greater accountability         in ULAs,
                    introducing an incentive-based        system of budgetary transfers,
                    improving local resource mobilization,         and implementing a
                    concerted municipal management training         effort.    The project
                    ccmprises:    (a) technical    assistance    and studies in the areas
                    of urban management and policy, financial          management, local
                    resource mobilization,     urban service delivery,       mapping and
                    human resource development; (b) demonstration           municipal civil
                    works; (c) aerial photography,        surveysand map production for
                    urban areas;and (d) equipment,         vehiclesand supplies
                    requiredfor the efficient       provision of the proposed
                    technical   assistance   and training.      By providing more
                    efficient   and cost-effective     urban infrastructure     and
                    services,   the urban population      would benefit from an improved
                    standardof livingand the enterprises           from increased
                    productivity.The foreseeable          risks are three,none of which
                    is unduly serious:(a) lack of political           support to reforms;
                    (b) limitedcoordination       capacityat the national level;and
                    (c) insufficient     availability qualifiedlocal manpower at
                                                         of
                    the national   and ULA levels.




  This document has a restricted distributionandmay be used by recipients only in the performance
                 duties Its contents may not otherwise be disclosedwithout World Bank authorization.
  of their ofAicial
                                                      -ii-

  Estimated Coat: jJ

                                                                      Local          EQKeign         Total
                                                                          -      -(US$ Million)--

                            Urban MNeagen ent and Policy                  0.71            2.21        2.92
                            Financial Managenent and
                               Resource Mobilization                      0.81            2.16        2.97
                            Service Delivery                              2.84            2.92        5.76
                            Napping                                       0.85            2.65        3.50
                            Human Resource Development                    0.43            2.00        2.43
                            Project  Administration                       0D-                         0,08

                                  Total   Base Cost                       5.72        11.94          17.66


                            Physical Contingencies                        0.02            0.25        0.27
                            Price Contingencies                           0.84            1.2        -2,46
                                  Total Project Cost                      6.58        13.81          20.39

  Financing      Plan:
                                                                      Local          FoEig           Tota
                                                                      -           (Us$ Million)---

                            Goverzent                                     6.58         0.81           7.39
                            IDA                                           QMOQ        13.00          13.00

                                  Total                                   6.58         13.81         20.39

Est&mated
Disbursements:              IDA FY         MflL FY11 1m 9             I     1I0F9 FY92                  1711   lxii
                                                                    (US$ Million)

                          Annual           1.04 3.41         3.50    2.14          1.42       0.98     0.31     0.20
                          Cumulative       1.04 4.45         7.95   10.09         11.51      12.49    12.80    13.00

   Economic Rate
   of Return-:,                  Not applicable
   StAffi ADraisi-
   lleport:                      Not applicable

   Nap:                          IBRD 19519



  &J Includes            taxes   and duties   of US$0.41 million.
                     INTERNATIONAL         ASSOCIATION
                                 DEVELOPMENT


                                         OF
                 REPORT AND RECOMMENDATION THE PRESIDENT
                        TO THE EXECUTIVEDIRECTORS
                        ON A PROPOSEDCREDIT TO THE
                 DEKOCRATICSOCIALIST REPUBLIC OF SRI LANKA
                    FOR A MUNICIPAL MANAGEMENT PROJECT


1.      I submitthe following                         on
                             reportand recommendation a proposedcredit
to the DemocraticSocialistRepublicof Sri Lanka for SDR 11.3 million
(US$13.0                   on
         millionequivalent) standard  IDA terms to help financea
municipal managementproject.


                            PART I - THE ECONOMY
                                               1/


2.      A country economic memorandum, "Sri Lanka: Recent Economic
Developments and Policies   for Growth" (Report No. 5628-CE, dated May 14,
1985) was distributed   to the Ezecutive Directorson May 28, 1985. Country
data are provided in Annex I.

3.      After almost ten years of low growth at 2.9 percent per annum, Sri
Lanka, in 1977, initiated    a new development strategy.    It entailed a package
of policymeasuresto liberalize      the economyand allow a greaterrole for the
                                               by
privatesector. These policies,supported the IMF, were designedto: (a)
reducegovernment                  in
                   intervention comodity markets; (b) reducegovernment
consumption  subsidies   and restoreproducerincentives     and public savings;   and
Cc) createa favorable     environment for private (foreignand domestic)invest-
ment throughtax concessions,                   of
                                 the creation an Investment      PromotionZone,
and the unification                      of
                      and depreciation the exchangerate. Two important
                of
characteristics this policy reformpackagewere: (a) periodicincreases
in the domesticsupportprice for paddy (to bring it into line with world
prices)that spurreda highly positiveresponsefrom paddy producers;            and
(b) a declinein the cost of selected      subsidies  and transfers   from about 10
        of
percent GDP in 1977 to about 3 percentby 1981.

4.                                    began to implement ambitious
       At the sAme time, the Covernment                 an
publicinvestment                 on
                 program centered three major initiatives:
(a) accelerated               of
               implementation the MahaweliGanga DevelopmentProgram,the



1/ This part is substantially unchangedfrom Part I of the President's
   Report for the Second IndustrialDevelopment Project (Report
   No. 4284-CE),                   by
                 which was approved the Executive   Directorson May 8,
    1986.
                                     -2-



largest multipurpose river basin development program ever undertaken in Sri
Lanka; (b) establishmentof a 200-square mile free trade zone to attract
foreign investors located north of Colombo near the international airport;
and (c) institution of a massive housing and urban renewal program focusing
mainly on the Colombo metropolitan region, including the construction of a
new capital complex at Kotte, a suburb of Colombo. As the public investment
program gained momentum, its share in GDP jumped from 6 percent in 1977 to an
average of 13 percent in 1978/79 and a peak of 19 percent in 1980. The
public investment was financed in part by domestic resources (generated, in
turn, by a reduction in subsidies and transfers) and, in part, by high levels
of foreign aid.

5.      The initial result of both the policy reforms and increased level
of investmentwas an impressive jump in the GDP growth rate during 1977-80
to an annual average of 6.8 percent. The growth rate subsequently declined
to a more sustainable 5.3 percent in 1980-83 and 5 percent in 1984-85.
Underlying the increased growth of output was the expansion of paddy
production, garment exports, construction, and tourist services. The growth
rate of paddy production averaged 5.7 percent a year during 1978-85 with the
result that rice imports declined sharply and averaged only 10 percent of
total rice consumption during that period compared to 33 percent during
1970-77. Manufactured garment exports increased from US$12 million in 1977
to an estimated US$300 million in 1985 and now account for 80 percent of
non-petroleummanufactured exports. Tourist arrivals increased from 150,000
in 1977 to 400,000 in 1982. However, due to ethnic disturbances, arrivals
have declined since to 320,000 in 1983/84 and an estimated 260,000 in 1985.

6.        The rapid expansion in aggregate demand, led by high levels of public
investment,   resulted in serious financial imbalances affecting the budget and
the balance of payments. The massive public investment initiated in 1977 led
to increases in budgetary spending from 23 percent of GDP in 1977, to a
record 43 percent in 1980. These high levels of spending, however, were not
accompanied by corresponding increases in fiscal revenues. When the economy
began to show serious signs of "overheating" in the early 1980s, the
Government squeezed current spending by reducing subsidies and by placing
limits on already inadequate public sector salaries and operation and main-
tenance expenditures. But with severe limits on the extent to which these
expenditures could be curtailed, the Government was impelled to borrow
heavily to finance the deficits which varied between 10 and 17 percent of GDP
during 1981-85. During that period, 45 percent of the deficits were financed
by foreign aid, 10 percent were financed by foreign commercial borrowings and
45 percent by domestic borrowing.

7.      The high levels of of investment also spilled over into the balance
of payments. Between 1977 and 1980, import volumes grew at an average annual
rate of 19 percent, while imported investment goods increased from US$83
million to US$493 million, and intermediate goods and petroleum imports
tripled in current prices. As a result of this fairly broad-based expansion,
merchandise imports as a share of GDP increased from 23 percent in 1977 to 51
                                    -3-



percent in 1980. Export volumes, however, expanded at a much lower rate (an
average annual growth rate of 5 percent between 1977 and 1980) as the decline
in tree crop export volumes offset the strong growth in garment exports from
firms established in the Investment Promotion Zone. Consequently,merchan-
dise exports as a share of GDP increased from 21 percent in 1977 to only 26
percent in 1980. These diverse trends in the volume of trade were accom-
panied by a 26 percent deterioration in the terms of trade over the same
period. Rapid growth in tourism receipts and private remittances from abroad
failed to offset this deterioration in the trade account, and the current
account balance deteriorated from a surplus equivalent to 2.4 percent of GDP
in 1977 to a record deficit equivalent to 19.8 percent of GDP in 1980.
Deficits in 1978 and 1979 were more than offset by increased net aid
disbursements, and Sri Lanka continued to add to international reserves.
But, in 1980 the situation changed, when the current account deficit rose to
$800 million. It was financed by concessional flows, use of reserves (which
declined by $220 million) and recourse to commercial borrowing.

8.      ReaLizing that a continuation of the 1980 trends would result in
serious financial instability, the Government initiated an adjustment program
in 1981. The measures agreed upon initially, in consultation with the IMF,
includev tighter overall monetary policy, a substantial reduction in govern-
ment spending, and a gradual realignment of the exchange rate. The economy
began to respond positively by the end of 1981 (when the current account
deficit in the balance of payments declined to 13.7 percent of GDP and the
budgetary deficit to 15.5 percent), but in 1982 - a year in which there were
presidential elections and a referendum to extend the life of Parliament -
the political resolve to continue to apply the needed policy mix weakened.
As a result, both the external and internal deficits increased in 1982 (to
15.3 percent and 17.3 percent, respectively)and the GDP growth rate declined
to 5.1 percent. Although policy measures did contribute to the decline in
the current account deficit of the balance of payments in 1983 and 1984 (12.4
percent of GDP in 1983 and 3.7 percent in 1984), the primary factor was the
improvement in the terms of trade as a result of higher tea prices. With the
subsequent decline in the price of tea, the terms of trade deteriorated in
1985 and the current account deficit of the balance of payments increased to
8 percent of CDP. Furthermore, on account of lower receipts from taxes on
exported tea and higher defense expenditures, the overall budget deficit
increased from 10 percent of GDP in 1984 to 11 percent in 1985. Because the
price of tea declined in the second half of 1985, however, its effects on the
budget will mostly be felt in 1986 when the fiscal deficit may turn out to be
much higher.

9.      Achieving a more viable internal and external financial position are
now two prime policy objectives for Sri Lanka. To improve the external
position, one of the foremost requirements of government policy will be to
restructure the economy towards exports rather than producing for the very
limited domestic market. With the exception of garments, for which Sri Lanka
has a particularly strong comparative advantage, exports have performed
poorly. A major focal point for improvinig export performance is the tree
                                    -4-



crop sector, which, as a result of more than a decade of neglect, has
experienced a stagnant level of production. This trend must be reversed.
To promote export activities, a more neutral incentive framework is needed,
including a foreign exchange policy that would permit the full diversity of
Sri Lanka's comparative advantage to develop.

10.     The Government has recently indicated its determination to pursue
reforms in this sector. In 1985, it reduced the overall tax burden on tree
crops. This reduction, in combination with the management/incentivereform
package for state-owned plantations implemented in early 1984, has improved
incentives for producers throughout this traditionally overtaxed subsector.
The Government has also introduced tariff changes, based on recommendations
made in the final report of the Presidential Tariff Commission on trade
taxes, aimed at reducing the overall tariff level and the variance of effec-
tive protection among sectors.

11.     The comparatively high levels of social welfare expenditures which
the population has long enjoyed and which cannot easily be reduced, together
with sharply increased defense expenditures, means that the Government must
renew its efforts to improve domestic resource mobilization -- especially in
the public sector -  to pay for these outlays. Improving the domestic finan-
cial situation will require broadening the tax base thus increasing tax
revenues and reducing unproductive government expenditures. A focal point of
these measures will have to be the public sector enterprises, which account
for 40 percent of the value added in the non-petroleum manufacturing sector,
but are a heavy burden on the budget because of high protection from external
competition, administered prices for their products, their monopolistic or
quasi-monopolisticposition, and the inefficient use of resources. They will
have to improve their management and reduce the support they obtain from the
budget.

12.     Throughout the entire 1978-85 period, the response of the interna-
tional aid community to the Government's development efforts has been
enthusiastic. Project aid was stepped up, particularly for the Accelerated
Mahaweli Program. The overall level of aid commitments per year increased
from US$250 million in 1977 to a record US$800 million in 1981, equivalent to
US$55 per capita. Disbursements grew much more slowly so that the aid
pipeline rapidly expanded to around US$1.63 billion by the end of 1981.
Because implementation and domestic financial constraints required cuts in
public capital spending after 1981, aid commitments declined to US$500 mil-
lion in 1982, US$350 million in 1983, and US$460 million in 1984, halting
further increases in the pipeline. Aid disbursements have increased
steadily, from US$200 million in 1977 to US$550 million in 1984. Continued
high levels of aid will depend upon donors' willingness to finance a sizeable
portion of local costs, provide supplementary financing for ongoing projects,
where needed, and to increase non-project aid. Local cost financing in
support of Sri Lanka's resource mobilization efforts will not only provide
valuable relief from budgetary pressures, but will also supplement foreign
exchange resources needed to support the balance of payments.
                                       -5-




13.     At the end of 1985, the external public debt outstanding and dis-
bursed stood at an estimated US$2.7 billion, about 40 percent of GDP.
Although over 70 percent of this debt is on concessional terms, the increased
commercial financing resorted to in 1981 and 1982 contributed to the increase
in the debt service payments (excluding IMF charges and repurchases) between
1982 and 1985, at which time the debt service ratio had risen to 15 percent.
Assuming that the Government's efforts to contain the budget deficit and to
implement policy measures designed to stimulate exports and efficient import
substitution activities are successful, the current account deficit in the
balance of payments should decline to approximately 7 percent of GDP toward
the end of the decade, and the debt service ratio, after temporarily rising
to almost 19 percent because of existing debt repayment commitments, should
drop to 15 percent in 1990. Nonetheless, the Government will need to monitor
carefully the level and terms of external borrowing to ensure that the
country maintains a satisfactoryexternal payments position.


                        PART II - WORLD BANK GROUP OPERATIONS


14.     Since the beginning of its operations in Sri Lanka in 1954, the World
Bank has approved 12 loans totaling US$183.7 million (net of cancellations)
and 38 credits totaling US$753.2 million (net of cancellations) in support of
47 projects. About 53 percent of World Bank assistance has been for agricul-
ture (irrigation, tree crops, and rural and dairy development), 17 percent
for power, 10 percent for transportation,     and the remainder   of 20 percent
among development finance company operations,     a program credit   (involving the
import of raw materials for industry), water supply, construction industry
training, and telecommunications. Eight loans and 16 credits have been fully
disbursed. Annex II contains a summary statement of World Bank Group opera-
tions as of March 31, 1986.

15.     In Sri Lanka, the IFC has a total investment of US$2.13 million
equivalent in equity and US$18.69 million equivalent in loans as of March 31,
1986. Investments have been made so far in two textiles industries, one
polypropylenebag industry, one equipment-leasing company, one hotel, and two
IFC lines of credit, one of which has been extended to the government-owned
Bank of Ceylon for term loans to medium-sized industries.

16.     A central element of the World Bank Group's current strategy in
Sri Lanka is the achievement of a more sustainable balance-of-paymentsposi-
tion in the medium term through export promotion and import substitution in
viable economic activities. The Bank Group's macroeconomic and sectoral
analyses of the Sri Lankan economy indicate that achieving and maintaining
external equilibrium in the context of a growing economy require major policy
changes in several areas: investment priorities should be assessed more
carefully than in the'past; the system of economic incentives should become
more consistent; the role of the public sector in manufacturing activities
                                    -6-



should be limited to clearly established priority areas; and cost recovery
should be seen as complementary to, rather than conflicting with, greater
equity in distribution.

17.     Within the above framework, the Bank's lending program has been
concentrating resources on directly productive sectors, such as agriculture
and industry, and in support of energy and transport infrastructure. Within
agriculture, Bank Group strategy had given until recently the highest
priority to the expansion of paddy production and to rehabilitation of the
vital tree crops subsector. Regarding tree crops, the objective has been to
channel resources into an activity in wihichSri Lanka has a comparative
advantage. While this objective will retain its importance, the probable
attainment of self-sufficiency in rice wiLl allow the lending program to
support in the future programs aimed at expanding the production of other
important agricultural products for local consumption and, possibly, local
processing for exports.

18.     The World Bank has also provided financing for a broad range of
large-, medium- and small-scale industrial enterprises, primarily in the
private sector, through support of industrial development finance
institutions. Future lending in the sector would continue this support,
focusing on firms with export potential. It would also capitalize on the
conclusions of technical assistance financed through past operations to
provide support for improvement in trade and incentive policies, and for
increasing the efficiency of public enterprises.

19.     The Government's priority to rehabilitate rundown infrastructure and
expand the capacity of existing capital stock by high priority new invest-
ments is well placed and necessary in order to support expanded economic
activity, particularly in the private sector. Major elements of the lending
program would be directed at helping to meet the energy needs of the economy
and at easing transport bottlenecks. The World Bank has provided financing
to a number of power projects for generation, transmission and distribution.
The thrust of future operations would be decided on the basis of a comprehen-
sive assessment of investment needs in all three areas. However, given that
the majority of high yielding sources of energy in Sri Lanka have been util-
ized already, it is envisaged that the future program would accord relative
priority to energy conservation rather than generation, through both required
investments and policy measures. The old and inefficient power distribution
system would be rehabilitated to reduce system losses; small but significant
improvements in energy conservation would be undertaken in large energy
consuming industrial/commercial units; and a study is underway to recommend
measures to improve energy efficiency in the transport sector, a large con-
sumer of commercial energy in Sri Lanka. Support to the transport sector
would continue with rehabilitation and upgrading of the road network,
institutionalizingproper maintenance methods and improving sectoral planning
of policies and programs.
                                    -7-



20.     Institutionalcapabilities, at both the planrking and implementation
levels, have been strained by the recent rapid expansion of public
investment. Continuing emphasis would be placed on project components sup-
portinginstitutionbuilding, human resource           businessand
                                          development,
industrialmanagement,and public administration.

21.    The World Bank's development of a coherent lending program for Sri
Lanka,and its continuous dialog'eregarding                      of
                                          the specificelements the
programand policiesnecessaryfor increasing the program's effectiveness,
                     by
have been accompanied firm supportfor a substantial           of
                                                     transfer resources
to Sri Lanka. The main groundsfor this supporthave been the need to offset
                 in
the deterioration the world trade environment;                 of
                                               the achievement a high
and sustained                             of
             growth rate;and the tightness the Government's   budgetary
situation as increased operational and maintenance requirements make demands
on domesticresources.

22.    The World Bank Group, as of the end of 1984, accountedfor 15.2
percent(IBRD,2.3 percent;IDA, 12.9 percent)of Sri Lanka'stotal debt
outstandingand disbursed, and 5.0 percentof debt serviceon medium-and
long-termdebt. The projected  World Bank Group's share in total existing
externaldebt outstanding and disbursed will increaseto 18.3 percent(with
                      to
IBRD'sshare declining 1.9 percent)and its share in debt servicewill
        to
increase about 5.4 percent,by the end of 1986.


                         PART III - THE URBAN SECTOR


          Context
Development

23.                                  is
        Sri Lanka'surban population currentlyabout 3.4 millionor 21.5
percentof the total population. The urban population's  growth rate is low
by regionalstandards. Government   projections estimateurban population
growthof about 2.4 percentper year for the period 1981-1991,  increasing the
                          to
share of urban population 23.2 percent. The relativelyslow growth of
                                       of
urban areas is relatedto achievements socialpolicies: birth and death
rates are lower in Sri Lanka than in any other countryof its incomeclass;
welfare,edacation  and health standards, althoughunder pressurein recent
years,are relatively  high and are widely spreadover the island.

24.     Several factors will keep Sri Lanka's urban population from growing
rapidly in the near future. Conscious policy efforts at decentralization
have resulted in geographically dispersed social services and nearly equal
social welfare indicators in urban and rural areas. Transportation networks
allow easy commuting from farms and villages to smaller urban centers for
employment, commerce, social services and amenities, helping decrease rural
to urban migration. However, non-agricultural production currently con-
tributes about 70 percent of GNP, and typically urban economic activities
such as manufacturing (14.3 percent of GNP), construction (8.8 percent of
                                    -8-



GNP), commercial services (17.6 percent of GNP), financial services (3.8
percent of CUP) and utilities, transport and other services (26 percent of
GNP) are expected to slightly increase their contribution to national
economic development. Therefore, improved urban efficiency is critical for
sustained economic growth.

Sector Organization

25.     An adequate national framework for urban administration is in place
in Sri Lanka under the guidance of the Ministry of Local Government, Housing
and Construction (MLGHC). The 51 urban local authorities (ULAs) and 7
statutory bodies, including the Urban Development Authority (UDA), the
Natioral Housing Development Authority (NHDA), the National Water Supply and
Drainage Board (WDB) and 7 departments are supervised by MLGHC (see Chart).
The single-tiered local government structure consists of popularly elected
ULA councils, each with an independent corporate status, whose powers and
duties are conferred by statute.

26.     Administration in the ULAs generally follows the British model of
local government and is, in principle, capable of handling the full range of
local government duties. The ULAs have been granted independent raxing and
charging authority (property, entertainment, business and trade taxes, and
various user charges and fees for services) and borrowing power. Local
expenditures, on the other hand, are determined by the type of services
prescribed by law. UIAs are responsible for the regulation and administra-
tion of all matters relating to public health, public utility services and
local roads, and generally for promoting the welfare and amenities of their
respective urban areas. Except for shelter and, in some cases, water produc-
tion and distribution and electricity distribution, all basic urban services
are delivered through local governments, including streets, drainage, street
lighting, sanitation, solid waste collection and disposal, and community
facilities such as bus depots, markets, slaughter houses, playgrounds and
libraries. In addition, the decentralization of some urban planning and
shelter implementation functions from UDA and NHDA to the ULAs was initiated
in 1985. However, until recently, the MLGHC was neither adequately organized
nor staffed to develop and implement policies and support programs for ULAs
(para. 39).

Sector Issues

27.     The principal issues facing the urbar sector are that: (a) locally
mobilized resources and direct cost recovery are inadequate for providing
needed services; (b) financial management by the ULAs is weak; (c) ULAs have
become excessively dependent on government transfers for providing a minimum
acceptable range of municipal services; (d) provision of municipal services
is deteriorating; and (e) recruitment, training and retention of qualified
staff by ULAs are unsatisfactory.
                                   -9-



28.     Local ResourceMobilization.Locallymobilizedresources     and direct
cost recoveryare inadequate. As a result,many ULAs are not in a position
to cover the cost of theiradministration and the operationsand maintenance
of their assets. In addition,                           on
                              ULAs have been defaulting paymentsto WDB
and to the Ceylon ElectricityBoard (CEB) for water and power retailed
throughthe local authorities. For all urban servicesexceptelectricity
(i.e.,administration,  planning,water supplyand sanitation where
applicable, refuse collection,roads, street lighting, healthand welfare
services), ULAs spenta total of about Rs 179 (aboutUS$8.60)  per capita in
1982,a relatively  smallamount even for essential             of
                                                  maintenance existing
municipalservices.

29.                        a
        ULAs are financing decreasing             of
                                       proportion theirexpenditures    from
local taxes,with the balancebeing financedby servicechargesand govern-
ment transfers. In 1977,44 percentof local expenditures  were financed from
local taxes; in 1979, 29 percent;in 1982, 26 percent;and they are projected
to declinefurtherto about 18 percentby 1987 if the proposed  policyadjust-
ments are not implemented (para.38). Becausereal per capitaexpenditures
generally remainedstableover the period,the ULAs' financial  deterioration
has resultedfrom decreasing  local resourcemobilizationrather than spending
acceieration.ULAs do not need additional  taxing authoritybut would need to
                           of
improvethe administration existingrevenuesources,such as improved
valuation, ratingand revenuerecords.

30.     Financial Management. Although                         to
                                       ULAs have the potential be strong
                     the
local organizations, trend has been one of deterioration.Not until
recently                              in
         has a sense of responsibility financial   management been supported
by government policies, and by administrativeand financial reforms. A
valuation unit with sufficient capacityto revalueall urban property aon
five-year cycle has been largelyunused,while obsoleteand incomplete
assessments significantly reduceyields from the local tax with the greatest
potential for increasing locallygeneratedrevenues,the propertytax. A
                                on
lack of sound fiscalmanagement the part of the ULAs for financing
urgently needed urban serviceshas resultedin increasing  government sub-
sidieson recurrent  account (para.33). The Government's              in
                                                         willingness the
past to provide subsidies was a furtherdisincentive for the ULAs to adopt
soundfinancial  practices.

31.    All ULAs are requiredto preparean annual budgetconsisting  of
         of
estimates revenues                    on
                     and expenditures both recurrent   and capital
accounts. By law, the budgetshouldbe balancedby raisingsufficient   local
revenuesthroughthe property  tax systemto meet the difference between
proposedexpenditures and income from sourcesother than propertytaxes. In
practice,                                                         in
         this has not been done in many ULAs, leadingto shortfalls both
requiredcapitaLinvestments  and operating expenditures.

32.     The MunicipaLand Urban CouncilsOrdinancealso requires  councilsto
use a standardsystemof programbudgeting. However,prescribed    financial
systemsand practices, for the most part, are not being observedand the
                                   -10-



standard of local financial management is weak. This has been attributable
in part to a lack of experienced staff, inadequate financial information
systems, and laxity in monitoring at the central level. Nearly all ULAs are
behind in meeting the legal requirements for closing their books and conduct-
ing audits. The Auditor General is resFronsible for the audit of urban local
authority accounts; however, an urban local authority is not required to
publish its accounts, nor does the audit procedure provide for public
examination or objection to the accounts -- a serious weakness in public
accountability. A system of auditing is in operation, but the preparation of
annual accounts for many ULAs is considerably in arrears. In September 1985,
20 ULAs had not submitted their 1984 accounts, and several were more than one
year in arrears.

33.     Government Transfers to ULAs. To sustain minimum levels of urban
services, ULAs depend on the national treasury and receive subsidies to meet
shortfalls in their operating budgets. A large proportion of the recurrent
grant is allocated according to increases in employee costs statutorily
imposed on ULAs by Government to ensure that local government staff salaries
and conditions are equivalent to those of central government employees.
Total transfers from Government to the ULAs have increased steadily from
about Rs 79 million in 1977, to Rs 318 million in 1983, and 580 million in
1984. These transfers absorbed about 1.2 percent of Government's recurrent
expenditure budget in 1984. The importance of government transfers is even
greater when seen from the point of view of the ULAs' operating budgets. For
example, in 1977 transfers covered 43 percent of ULAs' operating
expenditures; in 1983, 44 percent; and in 1984, 80 percent. The large
increase in 1984 was due to the Government's greater statutory salary support
requirements and payment of debts accumulated by the ULAs with CEB and WDB
over several years, and was in addition to revenue sharing and coverage of
operating deficits. Unless a strategy for strengthening local resource
mobilization and improving financial management is implemented, these trends
could have more serious fiscal implications for the treasury and further
diminish the capacity of urban areas to provide infrastructure for and serv-
ices to households and businesses.

34.     In contrast to transfers for recurrent expenditures, total capital
grants are very small (Rs 12.3 million in 1984). Until 1986, there was no
formal strategy for the allocation of capital grants to ULAs. The assistance
distributed was based on a small (Rs 0.2 million) allocation per electorate.
ULAs are expected to generate internal resources or to borrow to cover the
cost of capital projects. Nevertheless, the ULAs cannot effectively exercise
their borrowing authority because their creditworthiness is perceived as
limited. As a result, the ULAs' borrowing instrument, the Local Loans
Development Fund (LLDF), depends on government sources of finance, amounting
to approximatelyRs 5 million a year, which is insignificant compared to the
ULAs capital needs. In addition, LLDF is not organized effectively and an
expansion of its operations should be reviewed.
                                       -11-



35.     Urban Service Delivery. Although, in general, conditions of cities
in Sri Lanka are better than in neighboring countries, ULAs suffer from many
deficiencies. Municipal services for developing land have not kept pace with
population growth. Shanties are estimated to house 15,000 families in
Colombo. The 1981 Housing Census estimated that piped water supply was
available to less than half of all urban households; of which only one
quarter have it on the premises. Sanitation was underdeveloped: only a few
parts of Colombo have waterborne sewerage systems and those are in poor
repair. Although 18 percent of households had f'.ushtoilets and 65 percent
had other forms of latrines, 18 percent had no facilities. The planning,
construction,operations and maintenance of other urban services, such as
roads and storm drains, is severely inadequate. Even the necessary correc-
tive maintenance often is not carried out, allowing assets to fall into
disrepair and premature deterioration. A water supply and sanitation
rehabilitationproject, being processed in parallel with this project, would
provide financing to help ease some of these constraints.

36.     Human Resource Development. In some larger cities, the numbers of
ULA staff seems adequate. This is not the case, however, in the smaller
towns which are at a disadvantage in recruitment of qualified staff and where
positions often remain unfilled for months or even years. Moreover, the
appearance of adequate staffing may be the result of towns not performing
many of their development functions because of shortage of funds. Where
there have been attempts to increase significantly the developmental
activities of cities or to collect reasonable levels of taxes and charges,
inadequate staffing has emerged as a serious problem.

37.     The Local Government Department of the MLGHC is responsible for
assisting local authorities to recruit, place and train staff. There is no
overall humn resource development strategy, however, and the existing train-
ing resources in municipal management have been inadequate in the areas of
administration,finance, resource mobilization and even in operations and
maintenance of municipal   services.   Little systematic training is available
to new recruits in the ULAs, forcing on-the-job training on ill-prepared
local officers. The Sri Lanka Institute of Development Administration
(SLIDA) offers only one short course in budgeting and financial control and
one diploma course in public financial management. These courses, however,
are broadly focused and not aimed specifically at municipal finance. The
National Institute of Business Management (NIBM) also offers finance and
management courses for businesses and industries, but those courses do not
meet ULA needs. Finally, the training approach of the Local Government
Training and Research Institute (LGTRI) of the MLGHC has relied mostly upon a
small lecture program to the exclusion of "hands on" exercises and work
experience and on outside lecturers with less relevant training and
experience in municipal financial management. LGTRI now focuses on training
of rural leaders. A vocational training project being processed in paralleL
with this project would provide financing to help ease some of the con-
straints in the construction industry.
                                        -12-



SectorPolicyAdjustments

38.     Emerging SectorStrategy. Recognizing magnitude the issues
                                               the           of
facingthe ULAs, the growingimportance urbanareas in the Sri Lankan
                                        of
economy,and the risk of socialunrest,the Government    carriedout in 1983,
under the leadership the MLGHC,a jointsectorreviewwith IDA to develop
                     of
a sectorstrategy(paras.42-43) to implement    the required policy
adjustments. The strategy  aims at developing, testingand adopting  new
approaches improvelocalgovernment
           to                          administration, focusing the
                                                                on
managerial, financial and servicedelivery  capacity ULAs beforeconsider-
                                                    of
ing significant increases capitalinvestments.The emergingstrategy
                          in
looks for long-term, sustainable improvements sectormanagement
                                              in                   by
decentralizing authority, developing greaterself-reliance  and
accountability, reducing financial            on
                                   dependence the centralGovernment
throughincreasing  local resource mobilization, developing incentives for
better resource use and proper operations and maintenance municipal
                                                          of
services, and initiating national
                         a          effortof technical  assistance and
training. To reducethe financial              on
                                   dependence the centralGovernment,     the
strategy aims at eliminating open-ended transfers coverULA operating
                                                  to
deficitsin the next eight years,limiting   transfers only to statutory salary
increases imposedby the Government ULAs,and to sharinglocallygenerated
                                    on
revenuescollected Government. The actionsdetailedbelowhave been taken
                   by
by MLGHC to initiateimplementation the sectorpolicyadjustments
                                    of                               in
preparation for the municipal management project.

39.     Urban ProgramUnit. In April 1985,the MLGHC took the first steps to
establish UrbanProgramUnit (UPU)for developing,
          an                                        implementing and
monitoring municipal
           a           developmentprogram. Six staffmemberswere appointed
to the UPU in August 1985. Its mandateis to: (a) initiate  basic financial
and operational improvements the ULAs principally
                            in                     within the existing
legal,institutional financial
                     and          framework;(b) developa detailed  policy
framework and strategyfor long-term, sustainableimprovements ULA
                                                             in
performance; (c) introduceand developan incentive-basedsystemof grants
and an improved capitalloan fund instrument; assisteach ULA in prepar-
                                            (d)
ing and implementing    management and finance plans;   and (e) monitor actual
performance  and assess   the impact of the national  strategy  and municipal
program.

40.     In an effort   to support   the UPU in fulfilling   its   mandate, the MLGHC
initiated August1985 a 12-month
          in                       UNDP-financed, IDA-executed technical
assistance project. The projectprovides  for four full-time specialists
Ceachworkingcloselywith their counterparts the UPU in the areas of
                                             in
urban management, localgovernment finance, municipal engineering, and
resource mobilization), a part-time
                        and            urbantrainingspecialist.The UNDP
projectalso aims at testingand implementing  short-term improvements par-
ticularly the areas of budgeting,
          in                        resource mobilization, financial manage-
ment and operations and maintenance pilotmunicipal
                                   of                 services. With UPU
assistance, the ULAs have taken immediatestepsto improvepropertytax
administration (records, billingand collection measures); introduce finan-
                                                                    a
                                  -13-



cial appraisal processfor capitalinvestments;  and establish(in the 12
                                            a
largerULAs) a Budgetand FinanceCommittee, GeneralManagementCommittee
and an Operations and Maintenance Committeeto exercisebetter controlof
financial management. The ULAs are now paying all currentbills for water
and electricity, and a schedule                     to
                                has been established repay all arrears
owed to CEB and WDB in the next three years.

41.     Government           to
                  Transfers ULAs. In 1985, the Government      reformedthe
inter-governmental transfer systemby introducing  performance criteriafor
allocating grants. Thesecriteriainclude: timely financial     reporting
(monthly and annualaccounts);  improvedrevenueperformance   (especially,
                            and
propertytax administration reevaluation);                 of
                                               efficiency servicedelivery
with emphasison operations  and maintenance;            of
                                             settlement arrearswith CEB
                     of
and 1DB; preparation an annualinvestment     plan and a four-yeardevelopment
                   of
plan, introduction quarterly    and yearly coordinating meetings;etc. The
number of criteriaand the relative  weight assignedto each in deciding
specific             to                                       in
         allocations each ULA need furtherrationalization order to
make the new systemmore effective. Recognizing   this, the Governmentis
proceeding cautiously                       of
                      with the introduction the system. In 1986, about
Rs 32.4 millionof recurrent  and capitalgrants,or about 5 percentof total
          to
transfers ULAs,have been withheldbecauseof actual performance.
                the                                     on
Notwithstanding limitedportionof grants allocated the basis of
performance criteria, preliminary information suggeststhat ULAs are already
responding            to
           positively this reform. In -he first threemonths of 1986,
five ULAs have introduced tax rate revisions, two have undertakenproperty
              two
revaluations, have improved     billingsand collections,  three have
increased water user chargesand three have introduced  new accounting
systems.

                            Strategy
IDA Role and SectorAssistance

42.      IDA's supportfor urbandevelopmentin Sri Lanka has been con-
centrated  over the past decadein the water supplyand sanitation  subsector.
Two lendingoperations   have been undertakenand a third is under
consideration.   Lessonsfrom the first two water supply operations
(Credit709-CE)suggestthat greateremphasisshouldbe given to strengthen-
ing of management  and that institutionaldevelopment efforts should be tar-
                                                            a
geted at the sectoras a whole. In addition,IDA completed Water Supply
and Sanitation  SectorStudy (No.4190-CE)and an Urban Sector Report
(No.4640-CE)(para.38) in 1984,both with significant                   of
                                                        participation Sri
Lankan sectoragencies. These reportshave been the basis for developing
sectoralpolicies,   broadening discussionswith donor agencies,understanding
more fully sectorinstitutions issues,and identifying
                                and                        the proposed
project.

43.    IDA's sectorassistancestrategysupports the Covernment'spolicy
adjustments(paras.38-41)and emphasizesthree objectives: (a) the
             of
strengthening policyformulation and public sectormanagement capacity
                                 technical
through,interalia, more systematic         assistanceand training(espe-
                                   -14-



cially in the area of financial and municipal management); (b) improvement of
local resource mobilization,through better administrationof the property
tax and, more importantly, the introduction of a performance-basedsystem of
government transfers to ULAs; and (c) more efficient and effective use of
resources in delivering and maintaining urban services. The Association can
assist the Government in achieving these objectives by supporting its policy
adjustment process to improve municipal management.


                           PART IV - THE PROJECT


Project Formulation

44.     The project was identifiedduring the preparation of the Urban Sector
Report (paras. 38 and 42), which included a broad review of the country's
urban policies and programs. The project's objectives, scope and preparation
schedule were agreed with Government in August 1984. Following this
agreement, MLGHC decided to establish the UPU (para. 39) as the focus of
sector policy development and for preparing a municipal management program,
and mobilized consultants in August 1985 to support project preparation under
the UNDP-financed,IDA-executed technical assistance project (para. 40). The
proposed project was appraised in November 1985. Negotiations were held in
Washington, D.C. from March 24-25, 1986. The Sri Lankan delegation was led
by Mr. R. Paskaralingam,Secretary, MLGHC. No appraisal report has been
prepared given the technical assistance nature of the project. A supplemen-
tary project data sheet is attached as Annex III.

Project Objectives

45.     The proposed project would support the Government's sector policy
adjustment process as set out in para. 38, strengtheningthe MLGHC's
organization and developing and refining approaches for improving the
managerial, financial and service delivery performance of all ULAs. It is an
explicit objective of the project to support all ULAs, including the less
stronger ones, so they can benefit from technical assistance and training in
management improvements. The objectives of the proposed project have a high
probability of being achieved for two reasons. First, the Government at its
highest levels, and also MLGHC's leadership, are determined to bring about
necessary reforms in all ULAs. Second, the Government possesses an effective
means of inducing ULAs ro introduce the required reforms through the provi-
sion of grants, which finance more than 50 percent of ULA's operating
expenditures. The Government has already introduced a performar;ce-based
system of grant allocations among the ULAs, covering 5 percent of total grant
alLocations (para. 41), and has explicitly stated that the allocation of
progressivelygreater portions of grants to ULAs would become subject to
performance criteria. The proportion allocated on the basis of the perfor-
mance criteria would be decided on the basis of annual reviews of ULA
response to this incentive system.
                                    -15-




Project Description

46.     The project supports improvements in five areas: (a) urban manage-
ment and policy, (b) financial management and resource mobilization,
(c) service delivery, (d) mapping, and (e) human resource development.
Inputs for technical assistance and studies would provide an annual average
of 0.13 staff years of foreign expertise and about 0.55 staff years of local
expertise for each ULA during the 7-year period. These provisions are based
on minimum requirements for developing, testing and adopting the proposed
management improvements.

   1. Urban Management and Policy (US$2.92 Million)

        (a) Urban Program Unit: Technical assistance and studies for
            strengtheningthe management of the UPU, and developing further
            its capacity for policy formulation, investment programming,
            monitoring performance of ULAs and preparing a feasibility study
            for a follow-up municipal program. MLGHC would maintain the UPU
            and would staff it with appropriately qualified staff.

        (b) General Management: Technical assistance for strengthening the
            ULAs' administrative organization,developing management informa-
            tion systems and administrative procedures, improving organiza-
            tional structures, assisting manpower planning and development,
            and preparing management and financial plans.

        (c) CMC Organization and Management: A study for the improvement of
            the organizationalstructure, information systems, staffing,
            financial and technical management of the Colombo Municipal
            Council (CMC), and assistance for implementationof reforms
            recommended by the study, by July 31, 1989.

        (d) Ministerial Organization: Technical assistance and studies for
            reviewing the structure of the KLGHC and its sectoral departments
            and agencies, and developing a strategy for organizing a more
            efficient structure, and assistance in the implementation of
            reforms. It is expected that reforms would be introduced by
            July 31, 1989.

   2.   Financial Management and Resource Mobilization (US$2.97 Million)

        (a) Capital and Recurrent Transfers: Technical assistance for fur-
            ther developing and rationalizing the grant system, monitoring
            the new performance system for allocating funds (para. 41), and a
            feasibilitystudy to review the LLDF and its potential develop-
            ment into a municipal loan fund. MLGHC would maintain the
            performance-based grant system, would conduct an annual review of
            the system, and starting in June 30, 1988, in consultation with
                                -16-



         the Association would institute appropriate changes to the
         system, including allocating an increasing proportion of grants
         based on performance.

   (b) Financial Management: Technical assistance, equipment and
       studies for streamlining, improving and updating the municipal
       financial reporting system, including: introduction of new
       budgeting formats which relate revenues from and expenditures on
       services provided; introductionof a capital assets register and
       a supplies inventory; a streamlined accounting system and a study
       to review the long-term auditing requirements; capital expendi-
       ture programming and financial information systems for decision
       making, including a CMC computerizationstudy (which would lead
       to computerizationof CMC's operations in 1989); and

   (c) Resource Mobilization: Technical assistance and studies for
       improved organization and management of local resource mobi-
       lization in ULAs, with special emphasis on the local property
       tax and business fees, including new systems of property
       valuation, rating and revenue records, improved appeals and tax
       exemption p ocedures, including a study to set up a central
       rating/valuationunit. Revised property tax valuation and rebate
       systems are to be instituted in 1988.

3. Service Delivery (US$5.76Million)

   (a)   Infrastructureand Municipal Services: Technical assistance,
         pilot civil works, vehicles and equipment for demonstrating on an
         annual basis in selected ULAs more cost-effective approaches to:
         (i) planning and design, constructionand rehabilitation,opera-
         tion and maintenance of infrastructure(e.g., water supply and
         sanitation facilities, streets, storm drainage, electricity
         supply and street lighting); and municipal services and
         facilities (e.g., markets, libraries, and public administration
         buildings); and (ii) preparation of standards, guidelines and
         procedural manuals for implementing similar improvements in all
         ULAs; and a first phase of priority improvements in solid waste
         management for CHC. Criteria for selecting ULAs for pilot
         schemes include: coverage of service areas, diversity in popula-
         tion size, geographical location, institutional capability, past
         service performance and magnitude of needs. Pilot schemes would
         be selected annually from existing ULA investment programs.

    (b) Studies for: (i) defining ULAs' role in shelter programs and
        developing a 5-year shelter program for ULAs; (ii) municipal
        drainage systems and the development of guidelines for the
        preparation of local drainage plans; and Ciii)traffic management
        for greater Colombo and guidelines for traffic management,
        including management of public transport systems in Larger ULAs.
                                   -17-




  4.   Base Mapping (US$3.50 Million)

           Technical assistance and training for building up the capacity of
           the Survey Department, aerial photography, equipment, materials
           and vehicles for the production and updating of urban base maps
           for an area of about 530 km2, including links to the plot
           registration system in ULAs and in the Valuation Department, in a
           phased program for the ULAs, to be completed in 1991.

  5. Human Resource Development (US$2.43 Million)

       (a) Technical assistance, equipment and books for setting up a Local
           Government Training Unit within the UPU and for implementing a
           5-year training program for ULAs in the managerial, financial and
           technical areas, including staffing, program content and institu-
           tional arrangements with existing training organizations, to
           prepare and deliver about 105 course weeks per year.

       (b) Training fellowships and overseas training and study tours.

       (c) A study to formulate a long-term human resource development
           strategy for ULAs, including staffing needs, recruitment policies
           and salary structures (included in the urban management and
           policy component).

Operational Action Plan

47.     The implementationof the technical assistance studies, physical and
managerial improvements and policy measures would follow a number of bench-
mark dates by which actions should be taken. These have been grouped into an
agreed Operational Action Plan, which would facilitate the monitoring of
progress of the project and the achievement of its objectives. The Action
Plan would be reviewed annually by MLCHC and updated in consultation with
the Association.

Project Costs and Financing

48.     The estimated total cost of the project, including contingencies is
US$20.4 million, with taxes and duties of US$0.41 million (Annex IV, Table 1,
Summary Project Cost). Base costs are expressed in prices projected as of
JuLy 1986. The estimated foreign exchange component is US$13.8 million,
representing approximately68 percent of total project costs. Physical
contingenciesof 10 percent have been allowed on equipment, supplies,
vehicles, and books, but excluding the pilot civil works component. Price
contingencieshave been based on the following rates: for foreign costs, 7.0
percent for 1986 and 1987; 7.5 percent for 1988; 7.7 percent for 1989; 7.6
percent for 1990; and 4.5 percent for 1991 onwards; for local costs, 10.0
percent for 1986 and 1987; 9.0 percent for 1988; 8.0 percent for 1989; 7.6
                                   -18-



percent for 1990; and 4.5 percent for 1991 onwards. The project includes
about 195 staffyearsof local and 45 staffyears of foreign consultant and
advisory services to MLCHC, the UPU, the Survey Department and the 51 ULAs,
including CMC. The project would be financed by an IDA credit of US$13.0
million covering 64 percent of total project costs (65 percent net of taxes),
and the Government'scontribution of US$7.4 million (36 percent of total
project cost, 35 percent net of taxes). Credit proceeds and Government
counterpart funds would be passed on as budgetary allocations to the MLGHC
and as grants to the various ULAs.

Project Implementation

49.     Status of Project Preparation. Project preparation was initiated
by an MLGHC Steering Committee and several Task Forces which emerged from the
preparation of the joint Association/Government Urban Sector Report.
Responsibilityfor project preparation was assumed by the UPU in May 1985.
The unit became fully operational in August 1985, with the appointment of six
staff in urban finance, resource mobilization, service delivery, urban
management and training, and with consultants supported by the
UNDP-funded/IDA-executed Technical Assistance Project (para. 40). The
project's broad objectives, institutionaldesign and components were
presented in a proposal in late 1985. UNDP supported technical assistance
would be continued to July 1986 to complete preparation and to initiate pilot
testing of the proposed improvements in financial reporting, revenue
administrationand service delivery standards and maintenance procedures, and
to initiate key training courses.

50.     Recruitment of additional staff needed for the UPU has begun. Final
terms of reference have been prepared for the major technical assistance
components requiring consultants' services. Shortlisting of qualified firms
began in April 1986. Selected firms and consultants would be in the field
starting September 1986. An overall procurement plan has been prepared
(para. 52). All critical preparation work should be compLeted in time for
the scheduled project start-up in September 1986.

51.     ImplementingAgencies. The MLCHC, through the UPU, would have over-
all responsibilityfor coordination and management of the project. The
implementationstrategy is one of testing, refining, learning and adapting
methods in municipal management. The ministry would also be responsible for
contracting consultant services for the UPU. The phasing of the principal
activities is illustrated in the implementation schedule (Annex V) and in the
Operational Action Plan (para. 47). The agencies involved in the project
are:

    (a) the MLGHC would be responsible for the institutionalizationand
        strengtheningof the UPU and training of its staff, the reforms of
        the grant and loan system including the monitoring of ULA
        performance,the ministry's organizational strengthening,and the
        human resource development study;
                                           -19-



     (b) the MLGHC, throughthe UPU, would be responsiblefor overallpolicy
         direction, monitoringof projectimplementation, includingprepara-
         tion of a follow-upurban program, and the technicalassistanceand
         studiescomponents;

     tc) the NLGHC,through the LGTU, to be established      as part of the UPU,
         and with assistance   from SLIDA, NIBM and CITP/ICTAD, the
         universities,   and CHBP, would execute the training   components;

     (d) the ULAs, with UPU assistance and as appropriate the sectoral  agen-
         cies (namely WDB and CEB), would implement the municipal service
         delivery component;

     Ce)   the ULAs, with UPU assistance,         would implenent   the financial    manage-
           ment and resource mobilization         components;

     (f) the CNC, in liaison with the MLGHC, would implement the organization
         and management and computerization studies for that city, the ini-
         tial phase of the solid vaste management improvements and the traf-
         fic management study; and

     Cg)   the Survey Department, in liaison         vith             would execute
                                                            the MfLGKC,                  the
           base mapping component.
Procurement

52.        Procurement arrangements are snmmarized in the Table below.
Consultants      services for technical      assistance    and studies would be obtained
through short listing       in accordance with IDA guidelines         on selection    of
consultants     (US$10.6   million). Technical        assistance  for training    would be
awarded to the consultants        currently   engaged for this purpose (US$0.85
million).      Fellowships would be avarded following'approval            by the Association
(US$1.1 million).        The equipment, supplies and vehicles         that could be grouped
into contracts vplued at US$50,000 or more would be procured through
 International     Competitive Bidding (ICB) (US$2.5        million).     Goods manufactured
locally would be given a preference          margin of up to 15 percent or the
applicable     customs duty, whichever is lower, on ICB procurement.               All civil
works contracts      (US$2.8 million)     and equipment and supplies contracts         (US$0.7
million)    with a value less than US$50,000 would be procured through LCB.
Minor equipment and supplies (US$0.2 million)             in packages of US$10,000 or
less would be procured through local shopping based on at least 3 quotations.
 Minor civil work' for maintenance and rehabilitation              of municipal services
and infrastructure       (US$1.0 million)    and mapping (US$0.5 million)        would be
carried out by force account in the ULAs and the Survey Department,
respectively.       It is not likely that any of the individual           civil works con-
 tracts would be large enough to attract           foreign bidders.      Moreover, the local
construction     industry is well developed and capable of executing small
municipal works at costs competitive with international               bidders.    Local
competitive     bidding(LCB)policiesand procedures            followedby Government        are
generallycompatible        with Association     requirements.
                                                  -20-




                                                   I ________Procurgent Methods
                                       I           I    Short I        I        I                     I   Total
                                       I       ICB I    List &/I LCB   I  Other I                N/A -I   Costs

1.   Technical Assistance              I           I     10.60 1             I     0.85 b/l           I 11.45
     and Studies                           I       I     (7.67) I                 (0.62) I            1 (8.29)
2. CivilWorks                          l           l              1   2.80 £/l    1.00 s/I            1   3.80
                                       l        l                 I (0.53) I   (0.19) I               I   (0.71)
3.   Equipment, Vehicles               I 2.51 {II                 I  0.70 a/I   0.20 f.l              1    3.41
     and Supplies                      1(2.30) 1                  I (0.63) 1   (0.19) 1               1   (3.12)
4.   Surveying and Map                 l           l              1           1 0.53 Il                I   0.53
     Production                        l           l              I          1 (0.00) I                I  (0.00)
5.   Fellowships, etc.                 I                          l          I           I        1.10 I   1.10
                                       l           I              I          I               I   (0.87)1 (0.87)
6.   Project Administration                                                                  I    0.11 I  0.11
                                       I           I              I          I               I   (0.00)1 (0.00)

     TOTAL                             1 2.51      |     10.60    1 3.50     I  2.58         I  1.21 | 20.40
                                       1(2.30)     I     (7.67)   1 (1.16)   1 (1.00)        1 (0.87)1 (13.00)

NOTES: 1. All amountsin US$ million,including      physicaland price contingencies.
       2. Figures in parenthesis  are the respective  amounts financed by IDA.
       3. All equipment contracts  of US$50,000 or more would be subject to
          prior review by IDA. Other contracts would be subject to selective
                  post   award   review.

ai All contracts      for these consulting     services    would be awardedbased on
    the Bank's guidelines      for selection    of consultants      through short listing.
b/ Comprises:      (i) 3.25 man-years of expatriate         assistance    procured sole
    source (University      of Birmingham, UK, proposed to continue its current
   assistance   as a twinning arrangwaent) and (ii) 71 mar-years of
   individual   local trainers     and translators.
c; Part of the civil works contracts would be awarded based on LCB while
   part of the works would be carried out by force account in the ULAs.
   The latter    is an important element in the approach whereby specific
   projects would serve as vehicles for developing standards and other
   indicators    of service delivery efficiency         and guidelines     and procedure
   manuals for ULAs, based on strong involvement by ULA technical                 staff
   and with strong emphasis on on-the-job           training    and technical
   assistance   by UPU/Consultants.        The allocation     between contracted works
   and force account works would be determined on an anneal basis when the
   actual projects      have been selected.      All projects will be small with an
   estimated maximum contract        size equivalent      to US$50,000. 'The cost
   estimates   include minor related       equipment
dI Survey and mapping equipment for the Survey Department and a computer
   for C1fC. Procurement under ICB would apply to equipment packages of
   US$50,000 equivalent       or more.
e/ Vehicles,   survey instrunments and supplies.
g/ Local shopping, in an aggregate amount of not more than US$0.2 million,
   will be based on at least 3 quotations. This appliesto packagesof
   US$10,000 or less which would be financed through the Special Account.
g] Labor and administration,       etc. for force account work carried out by the
     Survey Department.
                                   -21-



53.     All procurement documentation would be prepared and reviewed by the
agenciesin charge of the respective   projectcomponents, under the supervi-
sion of MLGHC,which would have the sole authorityto executecontracts,
except for some civil works contracts                         by
                                       which would be executed ULAs. All
civil works and goods contracts US$50,000or more and all consultancy
                                 of
contracts, accounting  for about 70 percentof totalprojectcosts,would be
subjectto prior reviewby IDA. Other contracts    would be subjectto post-
award review.

Disbursements
54.                                    by
        The projectwould be completed December31, 1993, and the proposed
credit of US$13 million is expected to be disbursed by June 30, 1994. The
disbursement scheduleis given in Annex IV, Table 2. The eight-year   disbur-
sementperiodis consistent   with the region-wide            for technical
                                                   experience
assistance projects.
55.     Disbursements IDA would be fullydocumentedexceptpayments
                     by                                              under
contracts for locallyprocured goods and local civilworks costingless than
equivalent $50,000each,and in respect of civil works under force account,
which would be disbursedagainstcertified            of
                                          statements expenditures. IDA
would finance100 percent of foreigncosts of technical assistance and
studies;100 percent of overseasfellowships  and training;civil works at
20 percent;and equipmentand vehicles,100 percent of foreignexpenditures
if directlyimported, 100 percentof local expenditures, ex-factory cost if
locallymanufactured, and 70 percentif procuredlocally.

SpecialAccount

56.     In order to expeditedisbursements, SpecialAccountwith an
                                           a
authorized allocation dollars equivalent SDR 700,000(representing
                      of                   of
about four months of estimatedIDA-financed expenditures),would be estab-
lishedat the CentralBank for accountof the Projectentity, on terms and
conditionssatisfactory the Association. All IDA-financed
                        to                                  expenditures
will be eligible for financingout of the proceedsof the Special Accounts,
which would be replenished a monthlybasis on receiptand review of
                           on
withdrawalapplication,  supported the requireddocumentation.
                                 by

                  and Audits
FinancialManaRement

57.     Overallfinancial   management                  of
                                       and accounting the Projectwould be
                     of
the responsibility the MLGHC. The Projectwould provide technical        assis-
tance to ULAs for establishing   the information base for the municipal
accountingsystem. The MLGHC would consolidate      the accountssent by ULAs and
other Project entities  in a special set of project accounts, which would be
                  by
auditedannually independent       auditors acceptableto IDA. The annus;audit
would includeaudit of payments    made out of the SpecialAccountand a
separate  opinionon expenditures   reimbursed IDA on the basis of statements
                                              by
                                   -22-



of expenditures. The audit report should be submitted to IDA no later than
nine months after the end of each fiscal year.

Monitoring and Supervision

58.     Each of the executing agencies would prepare brief monthly progress
memoranda, which would be submitted to the MLGHC through the UPU. The UPU
would make recommendationson any corrective actions considered necessary
to ensure that project objectives, management reforms, implementation
schedules, staffing and cost estimates are achieved. Based on the brief
monthly memoranda and its own field supervision and controls, the UPU would
prepare semi-annual reports on the overall progress of the program highlight-
ing any major problems in any component and suggestions for overcoming them.
The semi-annual project reports would set out managerial, financial and
service delivery and training indicators, and would be submitted to IDA by
the MLGHC within one month following the end of each reporting semester. The
monitoring and reporting procedures and formats would be periodically
reviewed with IDA and updated as necessary. The Operational Action Plan
would be updated on an annual basis and reviewed with IDA. Upon completion,
GOSL woull prepare a Project Completion Report.

Project Justification

59.     Benefits. The proje^t is expected to lead to more efficient public
sector management at the national and local levels. Through improved finan-
cial management and more efficient resource use, the project would lead to
enhanced service levels and reduced demands on the national budget. The
project would strengthen the role of the HLGHC in implementing and monitoring
the sector policy adjustments initiated under the Government's decentraliza-
tion strategy. At the local level, the project would strengthen the
managerial, financial and technical expertise of ULAs by introducing and
improving systems for plAnning, financing, delivering and operating the
services for which they are formally responsible. The application of finan-
cial criteria for the appraisal of investments would increase efficiency of
resource use for more viable capital investments. The restructured inter-
governmentaltransfer system linked to ULA performance would also encourage
overall efficiency of local resource utilization. The project would also
support long-range training and human resource development to enhance the
technical, financial and managerial efficiency of ULAs.

60.     It is not possible to calculate the economic rate of return on the
project as a whole because of its technical assistance and training thrust.
Financial rates of return would be calculated for individual capital projects
with direct cost recovery, as and when they are designed (e.g., markets,
water supply, shelter, etc.).

61.     The project is not designed to specifically target benefits to the
urban poor. The project benefits take the form of gains in efficiency and
effectivenessin the delivery of urban services for the total population of
                                   -23-



the ULAs. It is estimated that about 30 percent of ULAs' population have
incomes below the poverty threshold and about 25 percent of project costs
would benefit the poor, directly and indirectly.

62.     Risks. The foreseeable risks are three, none of which is unduly
high: (a) lack of political support for the reforms; (b) insufficient coor-
dination capacity at the national level; and (c) unavailability of qualified
manpower at the national and local levels. To reduce the risk under (a),
procedural improvementsin the administration of property tax (including
extending coverage, improved record keeping, more efficient collection and a
new system of valuation) would be introduced in all ULAs. These are not
expected to meet serious political opposition. Similarly the service
delivery and mapping components would be introduced in a phased program
covering all ULAs. The more politically sensitive reforms, such as increas-
ing the property tax rate structure or the reassessment of property values,
are decisions that rest with each ULA, and would be gradually introduced in
ULAs with political support at the council level. However, the reformed
grants system provides incentives for carrying out property revaluation.

63.     Insufficient coordination capacity at the national level is addressed
by the project's institutionaldesign and the support and strengthening of
the UPU through extended technical assistance and training, and by the sector
policy adjustments initiated by the NLGHC (paras. 38-41). More specifically,
MLGHC's effort in project preparation, the setting up of a unit as a focus of
sectoral policy, the decisiveness with which performance incentives were
introduced in the 1986 grants system, and the organization of annual seminars
for ULA management, all indicate the ministry's long-term commitment to a
policy reform process supportive of the national decentralization effort.

64.     Regarding the limited availabilityand turnover of qualified
manpower, at the national Level the MLGHC has provided the UPU with a core of
skilled staff, and has formalized its mandate within the structure of the
ministry. Hanp.wer development is also supported through a long-term program
of technical assistance for the MLGHC throughout the implementation period.
In addition, the project supports a long-term training program for UPU and
ULA staff, including study tours and fellowships in municipal managemer.c,
finance, resource mobilization and service delivery, and the preparation of a
long-term human resource development study.
                                  -24-



                        PART   V - RECOMMENDATION


65.    I am satisfied that the proposedcreditwould comply with the
Articles Agreementof the Association
        of                             and recomend that the Executive
Directorsapprove the proposed credit.




                                              A. W. Clausen
                                                President
Attachments
Washington C.
           D.
April 24, 1986
                                                                                   -25-                                                             AMNX
                                                                                   I& IS* L
                                                                                                    MOWS?L1
                                                                                                                     PAt Fa         A                  lPCof
                                                                                                                    hNC~            wUUUofU6


                                                                              M(o es. .n>N
                                                                                        41.3                                              f
                                 ma~ ~
                                  (133      ~      ~            ~     ~       ~     ~           ~    ~    ~              ~ ~   on   a   num)L


      TOTL                                                            *s*
                                                                      65.           *s-                              *
  AAIUoLl1.S                                        1178.2            24.2          21.1
      3M cea       CM351                               ..               ..                                     13x.1                     W01'.'
inv           nouTia rU ceua
  cLoLOI           o     0IUTALKNT)
                       OIL                         122.0             31a.0          123.0                     231.7                      SA6.8
      NII nUgeXVL osfitce
  POPuLATIA .MID-9AS
                   CTluNuSA)                     9649.0             13211.0       1341..0
  WIAN PCPtSATIU                Or TOTAL)           17.3              21.9          23.0                      22.3                         311.

  POUUIATt SWKCitus
         ll
   POPulATIs tEal 2000 (lULL)                                                       21.1
   nOTATIOSSATPOPOLATIOS
                     (PUILL)                                                        32.0
      POPIN.TION 001mtm1.

  9oULqATIOU33311
      in g.  MS.                                  I1.O               190.3         231.0                  113.1                          334.9
       M SQ. UN. AG11.LAND                        113.9              517.6         32.U                   353.3                         1519.s
  POPUATIo *01 STuacTOm (5)
       @-il us                                      42.0              41.9          31.2                      3.1                         23.2
      11-4, TS                                     34.3               * .4            0.32                      9.                        57.7
      63 1AM AM                                     32.3               3.3            '.1                      4.1                            1.1
  POPIIATWOI
           CRlAUS lATE (2)
      TOTAL                                          2.1               2.4                1.4                       2.0                       2.3
      Una                                             '.3
                                                     4.1                              2.9                       4.31                          4.
  CtIII1       PAT (M1 TUSO                         33.7              29.4          2&.5                      27.1                         30.1
      Iu1 aImU RATS(M l2u )                          9.2               7.5           4.0                      10.2                          9.4
      mu01 3WIUOCTIONJA                              2.3               2.2            1.4                      1.7                          2.9
  POULI PLANNZI
   A         ANm.               (TONS)                ..               5.3         100.1
       sm      CZw sNeD              )               ..                ..           3.0                       *49.4                            .S

  2160 0 10010.MlCPT
  (SW71-1100)                                      93.0              103.0         144.0                  114.1                          124.4

  PU CAPT SUPL  or
   CILI     (a or
               N    UUUS)                          36.0              101.0         109.0                  10.                            113.3
   PUTINS( A       in Off)                         44.0               41.0          44.0                   £0.1                           £0.3
    or 1m11      SD"An ULS                          13.0              12.0            3.0                     14.4                        14..1
  01.        (CA   1-4) 364A1ILTE                   7.1                4.3           2.0                       73                             7.2

  Lin        mncT. A ut1s (TAS)                    42.0               *.6           39.1                      40.1                        10.1
  In*3I      S01?. at      (PU 1I)                 71.0                M9.0         37.0             H              .2                     44.9
  ACCES To gmN HATER(110W)
      TOTAL                                          ..               21.0          23.0 Id                   44.2                        44.0
      01313                                          ..               iv.ff         H.    j                   77.2                        57.4
      IMAL                                           ..               14.0          13.0                                                  37.1
  ACCESS KRTA DIUSSAL
       TO
  CZ or POPOLTIIM
      TOUL                                           *                 4.           H9.0L                      7.8                        30.1
      03*3                                          ..                74.0          30.0                      23.                         52.9
      anAL                                           ''               41.0          33.0                       1.1                        4&.7
  POPUATIO MU UtSCIA                             4490.0             1950.0        1170.0                 3318.0                         1711.1
  POP. P"      3035136   p3i"                    4*170.0            22£0.0        1340.0                 4490.7                         2444.5
      P. M NO=             tol
       TOUIL                                      320.0              330.0         340.0 It              1039.2                         I1111
       313                                        120.0     /        210.0         240.0 x                3".1                           451.4
      LOL                                        1060.0              370.0         54.0                  *2.2                           2513.9
  UIAD iUS P1L ESPITAL En                           ..                54.4           ..                       52.3                        43.1

  xVERE SIzE Of UOLD
    TOEZ.                                           3.4                1..
    13M                                              l.3
                                                    4.3
    WUSDL                                           3.2 11             S.S
  AV0    30. N Or
               iIdOWSu
   TOTAL                                            2.0 ib             2.1
      tWAN                                          2.1 7F             2.1
        LUL                                         2.0                2.5
        s92C1TA01
             Or 3JLIMM             WM    tLCT.
      TOTAL                                         7.35               9 .0
      1311                                         33.9 7F            3&.S           ..                        ..
      IDEAL.                                        2.3 7              3.0
                                                                                            _26                                                                              ANNEXI
                                                                                                                                                                             Page 2 of 6
                                                                                                  T A I Lf             3&

                                                          Sit LANKA                                - SOCIAL INDICATORS DATA MNEET
                                                          SRI LANKA                                              RCFSgRMCEGROPS (W&tOITEI) AVERAS) /a
                                                                                               MSt                        (MlST RgCENT LSTLHAT) lb
                                                                                               K&CtxLt             LOW tINCIl             ItDDLCE INCL4E
                                                          19601-b                197Utl        tSTIMATKSt        Ab4A & PACIFIC          ASIA * PACIIIC

     ADJUSTED ENlOLIENT tATIOS
       PRIMtA :   TOTAL                                 95.0                     99.n                   103.'l                          92.b                                 100.7
                  MAtE                                 100.0                    104.4                  106.0                           105.5                                 104.4
                  FCUALt                                90.0                     94.0                  lul.O                            79.3                                  S7.2

                TOTAL
       SECOUDAMYt                                         27.0                   47.0                   54.0                           31.3                                   47.b
                KALE                                      38.0                   46.0                   52.0                           4u.8                                   5U.b
                FESALE                                    16.0                   4d.0                   57.0                           21.Y                                   44.*

     VOCATIONAL(2 OF SECOHNDt)                             ..                     0.4                     0.4                            3.2                                  1U.4

     PUPIL-TEACMER RATIO
       8RNLWD                                             31.0                   28.0                   1b.0                            38.0                                  30.4
       SECOND                                                                                                                           17 .4                                 22.2


     PASSENGERCAISIT20S3AND POP                            S.4                    7.0                    7.3      /L                     0.9                                  Iu.I
     RADIO UECEWEIS/TSIOSAND POP                          35.8                   39.9                  111.9                           129.8                                 172.9
     TV RECEIVERS/TAOUSAZIDPOP                                                                           3.3                            19.8                                  58.5
     NEWSPAPER (DATIT GENETUL
      INTEREST") CIRCLATION
      PER THOUSAND POPLATION                              36.0                   48.9                  110.7                           25.7                                   65.3
     C1IA   ANNUALATYENDICEIAfITA                          2.9        j           7.8             *       .3                            6.0                                    3.4


     TOTAL LABORFORCE (THOUS)                         3391.0                   4188.0                 5920.0
       FEKALE (PERCENT)                                 22.6                     23.7                   25.2                           33.2                                   33.6
       AGRICULTURE(PERCENT)                             56.0                     55.0                   54.0 Id                        69.6                                   52.2
       INDUSTRY (PERCtNT)                               14.0                     14.0                   I4 0 7d                        15.8                                   17.9

     PARTICIPATION RATE (PERCENT)
       TOTAL                                              34.3                   33.5                   3B.4                           41.9                                   38.9
       HALE                                               50.8                   49.1                   S0.9                           53.6                                   50.8
       FEMALE                                             16.2                   16.5                   17.8                           29.1                                   26.8

                      RATtO
     ECONOMICDEPENDSNCY                                    1.3                    1.4                     1.0                            1.0                                   1.1

INONE; DTS!TI0UE
   PERCENT OF PRMVATE ZUCCUE
   RECEIVE ST
     I:IGCESS 5S OF HOUSENOLDS                            26.4 /h                18.2
     HIGHEST 20 OF HOUSCEOLDS                             5241 7ir               43.4                                                                                         4b.O
     LOWEST202 OF lOUSEHOLDS                               4.5 th                 7.5                                                                                          6.4
     LISST 4O2 OF IWOUS5EOLDS                             13.7 7;r               19.2                         .                                                               15.5

?O17      TAU     CROONE
     ESTIAM-D ABSOLUTE
                     POVEI               DCWE
     LEVEL (US5 PER CAPTA)
       URAN                                                                             .                  .                           133.9
       Il1RAL                                                             .                               ..                       111.6                                     151.5!

              REATIE POVEMY INDME
      STImKATED
     LVEL (USS PER CAPITA)
       UA                                                  ..                      ..                     ..                             ..                                  177.9
       RURAL                                               ..                                             .                            61.7                                  164.7

     ESTDLATED POP. BELW ASOLUTE
     POVERTYINCOM LEVEL II)
       UN                                                                          ..                     ..                           43.8                                   23.5
       RUMW                                                                                                                            51.7                                   37.8

       NOT AVALABLE
       NOT APPL!CANL.
                                                                10   T ES


       The rvop awtinps        for each          .ndtcatoa are                opplation-veIgted   arinluaric                   mans.          Coverage      of couetrlem
         1Mo the indicators       dependa        an avalability                 of date and Is not umiform.

/b     UDness othebils       noted.   "Data for 1960r refer to any year batven   1959 and 1961:                                               'Data   for    1970" betveen
       1969 and 1971;      and data   for  Naac Racent Estimate" between 1981 and 1983.

/c     1977;    Jd 1980;      Ic 1962;      /f    1979;         X    1976;      /h 1963;          /1 1978;        t    1958.




                                                                                                                                                                 JUNE. 1905
                                                                                                                                ANNEXI
                                                                      -27     -                                                 Page 3 of 6

                                                       DEIN(IMNh    OF SOCIAL INDICAT01ms
   Notes Although dab miedrawn
                  the               fromMwnUft7peneuaIt4 themort aviumth e and reliaNt it shotakld hetnted thatthe5ma) flit hemnternaiecnalI!
                                                        judged             rio                      it'
   cimpabhi beume of the Ilac of rarndrdized definitonk and comrpstamed different countrie. in co1kvmiun dilt The data.are. nrnaihekes.uewrul
                                                                        Wb                              liht                                      in
                 or
   dewntk orders tnrnoitde. midicate  iends. mndeharicterarcertimnmejor diltncri. heis ee ntine.
                                                                                    Knf
   The rerrenee ur*tiapsIlIIlth iaftcolfnir! groupof the suhli
                       rIe                                              and121. c unIr grouur iiih tnewhal higheiaerdpr
                                                                  aounflr                                               eincorie than the counir)
   FouruofThesbjeci coulnr) tfcit friR-Nigh Incotme I tporeerC gtrup where Middle Incsinl%'nhnfriLA andMiddl lati isichiien
                                                    Oil                                                                           bteciu ofmtiinget
   moo-cullural Wahnirsi In the rerenev proup daii the average. populatiun weighied
                                                              are                                  fan
                                                                                    irtuhmetikmeanc emihtndiw.o. and shown       onlh whenn.ajomrt
       Lcuuanirne sgorphasdal.tfolumimndwst"
   ofher         in                                SinficehcoLverage isuntriesinmong indkato depends the aii.iiiiil)
                                                                   of                Ihe                 on              tfdaia and it not unifnrm.
   cautionust heesrcosednretinig er.tage'ofronndiai.- to another Theseverae. arvoml      tuwfulnconiaflflnnthe dlue t oneindiatl,or iili     inwaniofn
   I
   th acunir) mndreferenvepritupa



AR EA I thou sand sq.k m I                                                    Crude Birth Roar per thousande        Num ber of Ih e births m Ihe ycJ:
Total -lotal   surrace area comprsinf     land area and miand v.it er%.       per thousnd    of mid-%car p.ipul.t.tin.   1960. 1970. and 1953 date
1960.197(tand 1953dat:                                                                     tpet sIhorund) Number of deaths in the year
                                                                              Crudr DeathRate
Agrieautal - Estimale of agncultural area used temporarl)       or            per thousand of mid-year populaion.         1960. 1970. and 1913 data
permanentl% for crop%. pastures. market and kitchen gardcn'. or its           Gross Reproduction Rat         Averagc number of daughters a womar
lie fallow. 1960. 1970 and 1952 dal.i                                         will  eair in her normal reproducitne period if she experience.
                                                                              prewsni age-specific fertilit) rates. usually five-yearaveragesending
GNP PER CAPITA        (LISSY--NP        per capila estimates Al currenl       tn 1960. 197(1.anJ 1983
market prices. calculated b) same conversion method as World                       y Plmning-A:eprr.        Annual (thousandsj- Annual num-
                -J
Bank Arlasf 1981 basit'). 1983data                                            ber of acceptor of birth-conroil de acesunderauspicesof nationa
                                                                              famnihplanning program
ENERGY CONSUMPTION PER CAPITA--Annual apparent                                      -

consumption of commercial pnmar) encrgy (coal and lignite.                    FamilyPning-users      (periet ofnmarried tmen)-- - The percen-
petroleum.natural gas and hydro. nuclear and geothermal clec-                 tage of married womenof child-bearing age who are practicing or
tricity) in kilograms of oil equivalent per capita. 1960. 1970.and            whosehusbands are practicing an) form of contraception. Women
 1982  data                                                                   ofchild-bearing ageare generallh women aged 15-49.although for
                                                                              some countries contraceptivC usage is measured for other age
POPULATION AND VITAL STATISTICS                                               groups.
    Popuaion. Mid- Yew thousands)-AsofJ ul) 1. 1960.1970.
Totdal                                                                        FOOD AND NL.TRITION
       data.
and 1983
                                                                              lind of FoodProdur Per Cpita
                                                                                                   ion               96971= IfI)     lndexofper
Urbn Poplation (percent ef torta Ratio of urban to total                      capita annual production of all food commodities Production
population;differentdefinitionsofurbanareasmavaffectcompar-                   excludesanimal feod and seedfor agricultur. Food commodities
ability of data amnong  coutrites; 1960.1970.and 1933data.                    include primars commodities (c.g sugarcane instead of supag
Population   Pnjerions                                                        which are edibk and contain nutrients (e.g coffee and tea are
Population yeor 20U l-The
             in                  projetion of population for 2000.            excluded), the% comprise cereals. root crops. pulses. oil seeds.
made for each economy separaiely. Starting with infonmation on                vegetables.Fruits. nuts. sugarcaneand supr beets.livestock. and
total population by ageand sex. fertilityrates. mortality rates. and          livestock products Aggregate production ofeach country is based
inteniational migration in the base year 1980. thtse parameters               on national averageproducer pnce weiLhts, 1961-65. 1970N       and
were projected at five-year intervals on the basis of generalized              1982data
assumptionsuntil the population becamestationary.                             rer CapitaSarpp4 Caories (percentofirequirenentsf--Comput-
                                                                                                of
Stationary population-is one in which age- and sex-specific     mor-          ed from calorie equivalent of net food suppliesasailable in countrn
tality rateshave not changedover a long period. while age-specific            per capita per day. Available supplies comprise domestic produc-
fertility rates have simultaneouslyremained at replacement level              tion, imports less exports. and changes in stock. Net supplies
(net reproduction rate- 1). In such a population. the birth rate is           exclude animal feed.seedsfor usein agriculture. quantities usedin
constant and equal to the death rate. the age structure is also               food processing. and losscs in distribution Requirements were
constant, and the growth rate is zero. The stationary population              estimated by FAO basedon physiological needsfor normal activius
sizewas estimated on the basis of the projected characteristics of            and health consideringenvironmental temperaturc. body weights.
the population in the year 2000.and the rate of decline of fertility          age and sexdistribution of population. and allowing 10percent for
rate to replacementlevel.                                                     wasteat householdlevel. 1961. 1970and 1982data.
Papularion   Momnenrnn-Is the tendencyfo - population growth to               Per Capita Sapply of Prrein (gramns daV)-- Protein content of
                                                                                                                    per
continue beyond the time that replacement-level    fertilit has been          per capita netsupp1% food perda. Net supply of food is defined
                                                                                                   of
achieved that is. even after the net reproduction rate has reached            as above Requirements for all countries established by USDA
unity. The momentum of a population in the year t is measuredas               provide for minimum allowance' of 60 grams of total protein per
a ratio of the ultimate stationary population to the population in            day and 20 gramsof animal and pulse protein. of which 10gram',
the year s. given the assumption that fertility remains at replace-           should be animal protein. Theses-andards.arelower than those of
mentlevel from year t onward. 1985      data.                                 75 grams of total protein and 23 grams of animal protein as an
Population   Denst                                                            averagefor the world, proposed by FAO in the Third World Food
 Per sq.km.-Mid-year     population per square kilometer (100 hec-            Supply. 1961. 1970  and 1982data
tares) of total area: 1960.1970.and 1983data.                                 Per CapitaProrein  SupplyFiero Anita andPnlise-Protein suppli
 Persq.km. agricultural land-Computed as above for agncultural                of food derived from animals and pulsesin grams per day; 1961-65.
land only. 1960. 1970.and 19E2     data.                                      1970and 1977data
Popaliuion   AgeStrwrtarr (percearl-Children (0-14 years). work-              Chfild(ages                              --
                                                                                         1-4. Death Rate (per thousand) Number ofdeaths of
ingage(l5-64years) and retird (65 yearsandover) as percentage                 children aged 1-4 years per thousand children in the same age
of mid-year population: 1960.1970.and 1983data                                group in a gipen year For most de'clopmngcountries data derned
                     Rate
 PopulaetionGrowth (percent)-bostal -- Annual gzrowthrates of                 from lafetables. 1960.1970and 1983data
total mid-year population for 1950-60.1960-70.and 1970-83                     HEALTH
Poplation
        GrowthRate(percerr-urban-Annual growth rates                                       at
                                                                              Life Expectancy Birth (years-- Numberof              vyars   a newbom
of urban population for 1950-60.1960-70.and 1970-1(3
                                                   data                       inrant would Inc if prevading patterns of mortality for all peoplc
                                                                   -28-                                                ANNEX I
                                                                                                                       Page 4 of 6
atthedineof ofits birthwere ny theumethroughout lifte
                          to                 its                           p&rnckr Rotio pr..!v. c ardmdur-Totalstudents
                                                                                               .                                       e.
           and
1960.1970 1983       data.                                                ralledin pnmary     and econdary    kvelsdividedby numberOf
 WowMeralbyRtw (pr shmusidj-Number infants die   of         who           techersin thecormponding       levels.
befioeechingoneyer of ag perthonund births a given
                                              lve         in
year.1960,1970 1983
                 and       data.                                          CONSN oN MTIm
Amn to n* S10er         (petteuof piobiQ-flal. U6i1
                                  _                                d      AawMUr Cars (per Sagsedpqpbrhj-PNsrcnger cars nw
 Numra-Nunber   of people                and
                          (otel.urban, rual)vAth        reasble           prei motor stint les thaneightpersons;
                                                                                       cars                               excludes  ambul-
   osm to ate watersupply     (indudes   treatedsurae vwaters     or      ance hears andmilitary       vehidc.
untretedbutuncontaminated such that fromprotc ed
                                water -                                                                                  types
                                                                          Rub Reeersr (pr khousm.dpopuiasbu)-All o recives
boreholes   prin andanitary          as
                               wells) pteentagestheirof      IcP-         for radio broadcastsgeneral
                                                                                                 to       public thousand populalion;
                                                                                                                per         of
                  In
dyepopulationL anurban a publicarea                    or
                                             fountain stndpost            excludes  un-licensed                        and
                                                                                                  receiverin countries in years       when
located more 200meters a horn may considerd
       not        than             Rrom               be                               of
                                                                          registration radio wasin effect; for recent
                                                                                                 sets            data            yearsmay
as bengwithinresable aces of thathoue. In ruralareas                      notbecomparable mostsince countrines    abolishedliensing.
reasonab   accesswouldimplythatthehousefeor ofthe   membeors              7 Ivers (praIIte-TV                                for
                                                                                                                      meivers brodcst
houselhold nothave spend disprp_iite part th dayn
           do           to       a                       of           rpbl-Trcnnobt
           the
in hetching fhnily's    waterndra                                         to gnerl public thousand
                                                                                            per           population:exdudes unlicensedTV
                                                                                   in            and
                                                                          receiven countris inyears         when            of
                                                                                                                 registrationTV st was
Acce to ExreteDrpoestl      (pemrce  efpopuhatioa-orarei. ineffect.
                                      f                             .
andrural-Number or peopie                     and
                               (total,urban, rurl) srvedby
ccreta disposal percentagestheirrespective
                  as              of                   populations. Ner'WY" Cfclsh (per t'thesa                psp.ldm)-Showstheaver
Eacreta disposal include collctionanddisposal or
                 may          the                            with         ae arculation "daely
                                                                                           of       geeralinterest newspaper  defined aa
withouttreatment, human
                    of         excea andwaste-waterwater- by              periodical publication  devoted         to
                                                                                                         primarily recording gnral news
borne systems theu- of pit privies similar
               or                       and         installations.        It isconsideredbe-dailyfirit appears least times week.
                                                                                          to                      at    four       a
hp.Wro perPblyidau-Rpulation                   by
                                       divided number prac- of            Clfem Amul Antm_ane CEa per Yew-Based the
                                                                                                        per                         on
     physicians
tising           qualified a medical
                          from                  at
                                          school university    levde      number tickets duringtheyear.
                                                                                   of         sold                 induding admissions   to
Pepulaia NArsbg
           per          Persne-fpulation             by
                                             divided number       or      drive-in          and
                                                                                  cinemas mobile        units.
practicing mal and emale       graduate   nures assistant    nurses
practicalnurses nursing
                and         auxiliaries.                                  LBORFORCE
&A l       per HepW mal-             wtol, - reral-pulation
                                       _M                                 Teral                                         active
                                                                                Lubr Frc (tbsmndsJ-Econornically personL,               in-
(total,urban,and rural)divided thei respective
                                   by                   number    of      duding  armed   forces unernployed excluding
                                                                                                  and            but          housewives.
        beds           in
hospital available public private,
                                and          gener and  speciaed          students. covering
                                                                                    etc.,            population all as. Definitions
                                                                                                                of                       in
hospitals rehabilitation
         and                 centers Hospitals establishnents various
                                                are                               countries notcempamcbk 1970 1983
                                                                                             are                 1960. and           data.
                    by
pmanently staled atleanone         physiian.  Establishments  prov-                                   labor     as
                                                                          FeA.f (percetrp--Female force percentage           of totalbbor
idingprncipany                  are
                 cusodl care not included.         Ruralbospitals, force.
however, include        and
                 health medical     centes penently staffed
                                            not                           Asrkabwe                       force
                                                                                      (percmnQ-Labor in farming.         forestry, hunting
by a physician by a medialaistant. nure,midwifeetc.)
                (but                                                       nd fishing percntalge totallabor
                                                                                      a             of           force;1960.      nd
                                                                                                                            1970 1910
whic offer                              nd
            in-ptit accommodation providelimited    a         rnge        data.
of mediclfaciities.                                                        hisry (percerr-Laborforcein mining,        construction   mu-
A'          perHeph R&d--Total        number admions to or
                                               of                                   and
                                                                          facturing eectricity,     water gas percentage labor
                                                                                                         and as              of total
           from
dischrges hospitals                by
                          divided thenumber beds. of                      force; 1960. and190 data.
                                                                                       1970
                                                                      Ani     winm      (pereerl-eeru, mkl,pation
HOUSING                                                                             a           as
                                                                      oracivityrates computedtotl. mle, and    fmale laborrorce
Aere    Skr of go-Ahed (rwas per &iusu)u-foral elon,                  as percentagesor toal maleand female popubtion all as
                                                                                                                     of
 avdrrt-A household   consistsa group
                             of                    who
                                        orindividuas share            recively; 1960, and 1983 These baedon ILO's
                                                                                       1970,         data.    are
             andt
lving quaters ti main             A
                           meas. boarder odr mayor
                                             or                       picipation rteslecting                of
                                                                                              ap- structure thepopulation, ad
maynotbe  induded thebousehold statiscl purpoes,
                   in              for                                longtimetrnd. A few           e
                                                                                          estimates fom natio sourcesl
Ava            of
        Number Persons Rem.-..
                          pe                orban. drralt-
                                             l      d,                &coam' Depeudeacy   Raria-Ratio of population     IS,
                                                                                                                   under and
Average number persons roomin Ia urban, rural
                of         per                     and                           to            age
                                                                      65andover, theworking population            aged
                                                                                                            (those 15-64).
occupiedconventional  dwelings, rpectively.Dwellings exdude
non-permnent  srumtures unoccupied
                        and              pat                          INCOME  DISTRlIUTION
Pereeqeof DiveWas Eetidy-flrul
                      wial                    ria, ad real-           Percenteof ToaDhpesaw Jncome(l1r & casb _d)-
                                                                                                             an
Conventional          with          in
            dweings eectricity liing quarters percen-
                                                   as                        to       groups households bytotelhouse-
                                                                      Accruing percentile  of         ranked
    of             and
tage total,urban, nualdwellings        respectively                   holdincome.
EDUCATnON                                                              POVERTY     TARGETGROUPS
A4ind EuwAuese       Plo,i                                                                   are
                                                                      The folowingestimates veryapproxinate             or
                                                                                                                measures poverty
Ptiary sWeol - tot( mate and       femeGleoss total, male d                   and
                                                                      levels, shouldbeinterpreted consideable
                                                                                                     with            caution.
femal enrolment all ages the prinary levda percentages
                  of         at                              or       EinwudtAheu        PovertyIwwe Lad (US perespc) -ardam
respectiveprimaryschool-aepopuations.While mny countries              ad real-Absolute poverty incomelevel is that incomelevel
consider                                           do
         primaryschoolageto be 6-11yaws,others not. The                                                           diet
                                                                       belowwhicha minimalnutritionallyadequate plus essential
           in                   in
differncoes countrypractices the ages nd durationof school                                  is
                                                                      non-foodrequirements not affordable.
arereflcted in the rtios  -rea.  For some counreswitb umivel           E&ned Redre AJwe lncom Levd(US percaybJ_-nha
educationgross                            IO
                 enrolment mayexceed perc sincesome                   ad rel-Rural      relativepoverty incomekvd is one-third of
pupilsare belowor abovethe county's standard     pimaryt-school                per
                                                                      average capitapersonal     income thecountry.Urbanlevelis
                                                                                                        of
agc.                                                                                                             for
                                                                      derivedfrom the rural level with adjustment highercost of
Secodaryschool- otal,mak cadfannie-Computedas above;                  living in urbanareas.
secondary education   requirs a last fkour years approved
                                                of         pn-        Esemucd Popiaea Delw ABsohure       Awert lyarwe Le (per-
maryinstructionprovides    general,           or
                                    vocationaL teacher training        cent -awro andrural- Percent population(urbanand rural
                                                                                                      of
                              of             of
instrutionsfor pupilsusually 12to 17years agr correspond-              whoare absolutepoor.-
cnce coursearegnelly excluded.
                       of                  institu-
Vationol Erobeni (percnt sracwary)-Vocational                                              Analysis DataDivision
                                                                                  Comparative     and
tionsindude                  or
           technicalindustrial, otherprograms which operate                                  and         Department
                                                                               EconomkAnalysis Projections
             or
independently as departments secondary
                             of         institutions.                                       June 1985
                                                                                    ANNEX I
                                                           -29-                     Page 5 of 6

                                                 SRI LMKA - ECONOMIC
                                                                   INDICATORS



 UTPUTIN 19Y4 1! SECTOR                                                 RATE OF GROWTII constant
                                                                   ANNUAL            (Z.                            priceS)

                                      Value Added
                                    $ million2                             1970-77                        1977-84 1970-84

Agriculture                           1.519       28.0                       2.0                  4.0               3.0
Industry    L/                        1,347       24.8                       2.1                  5.3               3.9
services                              2i566       47.2                        LIZ                 L.                5.4
   Total L/                           5,432      100.0                        2.9                 5.7               4.4


                         GROSS DOEBSTICPRODUCT 1984
                                             II
                                                                            U$      11illion          %

                         GDP at NarketPrices                                     6,012            100.0
                         Investment                                              1,567             26.1
                         Gross National Savings                                  1.347             22.4
                         Current AccountDeficit                                     220             3.7
                         Exports of Goods and NFS                                1,755             29.2
                         Taports of Goods and NFS                                2,121             35.3


                GOVEENNT    FINANCE
                                                                           Central Goverment
                                                          (Re million)        Z of GDP at Market Prices
                                                               984
                                                              1M                175     183       1 984
            Current    Receipts £J                           33,342              17.2          18.9         21.8
            Current    Expenditures 5Ji                      27,795              18.3          18.6         18.2
            Current    Surplus                                5,547              -1.1           0.3          3.6
            Capital    Expenditures 3/                       21,105                7.3         13.7         13.8
            Ekternal    Assistance                           12,934               3.2           8.0          8.5


&J   Nanufacturing,      mining, and construction.
IL GDP at factor        cost.
_i   Includes     capital revenue.
Al Includes       advance accounts.
3/   Includes     net lending.

                                                                         South Asia Progras  Department
                                                                                 February 5, 1986
                                                                          -30-                       [gme bOf         6


                                                   III LANKA-                   INDICATORS
                                                                          CONOMIC


pONFf. CCRDIT. ANDPRlCZB
                    IED                                   £127             1978     lD9         t980          tin            1982            19U1               UIM
(Cnd of period)                                                                              (R. Million)

Money and Quasi Money                      3,115         8,717            10,589   15,058      19,860        24,447         30,510          37,257           43,427
lank Credit to Public Sector               2,856         4,659             4,226    6,267      13,095        17,277         21,828          21,918           18,703
hnk Credit to Private Sector               1,320         4.116             6,449    8,705      12,709        16,690         20,570          27,375           31,224

                                                                                   (Percentages    or Index Numbers)

Honey and Quasi Money as 2 of CDP           22.8          23.9             25.5      28.7        29.9          28.8           30.5            30.6              28.4
General Price Index (1970-100)             100.0         147.0            164.8     182.6       230.2         271.6          301.1           343.3            400.5
  Annual Percentage   Changes in:
General Price Index                         45.9          .1.2            .12.1     .10.8       +26.1         +16.0          +10.8           +14.0            416.7
Dank Credit to Public Sector               +10.4          +7.7             -9.3     448.3      +109.0         +31.9          .26.3             40.4           -14.7
Dank Credit to Private   Sector             +8.6         +40.5            +56.7     +35.0       +46.0         .31.3          +23.2           .33.1              14.1


BJLMICE OF PAYMENTS                                                                  MZRCIIANDISEXPORTS(1964)

                                           15            tl               194                                                 S Million                  L
                                                   (U$        Million)
                                                                                     Tea                                               620              42.0
Exports of Goods, IFS                     1,305      1,360               1,755       Rubber                                            130               S.8
Imports of Goods, IWS                     2,205      2.138               2,121       Coconut Products                                   60               4.1
Resource Gap (deficit * -)                  -9D0      -778                 -366      All Other Camodities                            __S               -AS

Net Factor Income                           -98          -138             -131                TOTAL                               1,475               100.0
Net Transfers & memittances                 264            274             277
Balance On Current Account                 -734          -642             -220
                                                                                     ElTERNAL DEIT (S Million)               NJ
Direct Foreign Investment                    63             37              36
Net HILT Loans                              403           292              311                                                 December               Decmber
  Disbursments                              472           373              410                                                   1983                   19. .
  Amortization                               69             81               99
Capital Grants                              162           171              154       Total    Outstanding                       3,678                 3.738
Otber Capital  (net)                         79           143               24
Cbhnge in Reserves (. - increase)           -27             +1            .305       Total Outstanding
                                                                                       and Disbursed                            2.214                 2,420
Gross Reserves (end-year)                   527           522              735
Met Reserves (end-year)                     -22           -21              284

Crude Oil and Petroleum     Products                                                 DEST SERVICE R4AlkOI             (2)            17.7               14.2
  Imports                                   59D           468              419
  Exports                                   158           114              129

                                                                                     IBRD/IDA LENDING, Sentember               30.     1965 (USS Million)
RATEoF EXCHANGE
                                                                                                                                            a           Is
Id 1979                     Znd 1982
US$1.00 - Rs 15.45          US$1.00 - Rs 21.32                                       Outstanding     and Disbursed                      34.6          362.7
Rs 1.00 - US$ 0.06          Rs 1.00 - US$ 0.05                                       Undisbursed                                        2L.9          342.2

zpt 1980                    Bud 19B3                                                 Outstanding,       including
US$1.00 - Rs 18.00          US$1.00 - Rs 25.00                                         Undisbursed                                      58.5           704.9
Rs 1.00 - U05 0.06          Rs 1.00 - USC 0.04

End 1981                    End 1984
Us$1.00 - Rs 20.55          US$1.00 - Rs 26.28
Rs 1.00 - US$ 0.05          Rs 1.00 - 0S$ 0.04


A/   Repayable in f oreign currencies  and vith a maturity over one year.
hi   Ratio of debt service on public and publicly     guaranteed MILT debt (including                   IF    charges
     and repurchases)   to exports of goods and selrices.


                                                                                               South Asia Programs Department
                                                                                                     FebruAry 5, 1986
                                              -   31 -
                                                                                ANNEX II
                                                                                Page 1 of 2



                                                          IN
                          THE STATUSOF BANKGROUPOPERATIONS SRI LANKA

               A.           OF
                    STATEMENT BANKLOANS AND IDA CREDITS (as of March 31. 1986)

                                                                                           US$ million
Loan or                                                                                      hAount
Credit                                                                             (net   of cancellations)
 No.         Year     Borrover          Purpose                                   Bank     IDA Undisbursed

Eight loans and sixteen   credits    fully disbursed                              72.9    133.2
 818        1978 Sri Lanka Tree Crop Rehabilitation                (Tea)                   21.0          5.1
 891        1979 Sri Lanka Kurunegala Rural Development                                    20.0          7.0
 931        1979 Sri Lanka Agricultural           Extension     and
                                  Adaptive Research                                        15.5       9.0
 979        1980 Sri Lanka Nahaveli Ganga Technical                Assistance               3.0       1.3
 994        1980 Sri Lanka Road Passenger            Transport                             53.0      13.0
1017        1980 Sri Lanka      Smallholder      Rubber Rehabilitation                     16.0       5.8
1020        1980 Sri Lanka Telecommunications                                              30.0       0.7
1041        1980 Sri Lanka Second Water Supply                                             30.0      12.6
1048        1980 Sri Lanka Sixth Power                                                     19.5       8.4
1079 la     1981 Sri Lanka Second Rural Development                                        33.5      13.5
1130 La     1981 Sri Lanka Construction            Industry                                13.5       3.6
1160 La     1981 Sri Lanka Village         Irrigation      Rehabilitation                  30.0      18.1
1166 La     1981 Sri Lanka Mahaveli Ganga Development III                                  90.0      40.6
1182 La     1982 Sri Lanka SKI II                                                          30.0      23.1
1210 La     1982 Sri Lanka Seventh Power                                                   36.0      10.7
1240 La     1982 Sri Lanka Tea Rehabilitation              and
                                  Diversification                                          20.0       9.0
2187        1982 Sri Lanka Eighth rower                                           36.7       -        2.6
1317 /a     1982 Sri Lanka Forestry          I                                              9.0       8.4
1363 La     1983 Sri Lanka Third Rural Development                                         23.0      12.2
1401 La     1983 Sri Lanka      Industrial      Development Project                        25.0       8.1
14    la /b 1984 Sri Lanka Mahaveli Ganga Development IV                                   30.0      30.0
2437 Lb     1984 Sri Lanka Mahaveli Ganga Development IV                          12.1               12.1
1537 /a     1985 Sri Lanka Major Irrigation             Rehabilitation                     17.0      17.6
2517        1985 Sri Lanka Second Roads                                           24.0               21.1
1562 la     1985 Sri Lanka Fourth Tree Crops                                               55.0      55.6
2576 La Lb 1985 Sri Lanka Dairy Development II                                    38.0               38.0
TOTAL                                                                            183.7    753.2     387.2
   of which has been repaid                                                       52.1      6.2
Total now outstanding                                                            131.6    747.0
hAount sold                                       3.6
   of which bas been repaid                       3.6
Total now held by Bank and IDA /c                                                128.0    747.0

Total Undisbursed                                                                 35.7    351.5     387.2

/a   IDA 6th, and 7th replenishment        Credits,    principal    amounts and credits      not
     yet effective    shown in US dollars      equivalent     at date of negotiations,      as shown
     in the President's     Reports and undisbursed        amounts for effective     credits     shown
     in US dollars    equivalent   at the rate of exchange for the SDR at March 31, 1986.
/b   Not yet effective.
/e   The original   principal    of credits   under replenishments       1, 2 and 3 has been
     increased   by the amount of the translation          adjustment   as a result    of the
     devaluation   of the US dollar     in 1972 and 1973.
                                        -   32 -

                                                                         Page 2 of 2

                S.     STATUT   OF' TIC KNKSHKTS (as of Nmrch 31. 1986)


miN1r            2h.1C                             SVTyge
                                                        of    uinsount                 (US Million)
                                                                            km       lbuiti   Total

1970       Pearl Textile                           Textiles                   2.50     0.75    3.25
1978/80/83 The Development Finance
             Corporation of Ceylon                 Development Banking         -       0.45    0.45
1978/81    Bank of Ceylon                          Development Banking        7.00      -      7.00
1 979181   Cyntex                                  Textiles                   3.15     0.54    3.69
1979       Hikechris Industries                    Polypropylene Bag          0.89     0.10      .99
1980/84185 LMC                                     Leasing                    3.00     0.34    3.34
1981       Taj LankaHotel  s                       Hotel                     19.30      _70   20.00
              Total Gross CGmitments                                         35.84     Z.84   38.72
               Less:  Cancellations,     Terminations,
                      Repayments, and Sales                                  17L2       ._n   17.L0
               Total Citments        now Held by IPC                         18.69     2.13   20.82
                                            - 33 -
                                                                             ANNu_III
                                                                             Page 1 of 2


                                            SRI LMKA

                                          NbANMENKT
                                  JUNICIPAL       PROJECT

                              Suunlmentarv ProjectDAta Sheet



Section1: Timetableof Key Events:

           (a) Time taken to prepare
               the project:                          15 months

           (b) Projectpreparedby:                    Ministry Local Govermuent,
                                                              of
                                                     Housing and Construction, assisted
                                                     by Grant Thornton (USAWK), financed
                                                     by UNDP

           (c) First IDA mission to
               prepare project:                      August 1984

           (d) AppraisalMission
               Departure:                            Novenber1985
           (e)    Negotiations     completed:        March 15, 1986

           (f) PlannedCredit
               Effectiveness:                        September 1986


Section    2:    Secial     IDA Actions-:

           None


Section3:         Special   Conditios:

          (a) The LGIC would maintain the UPU and would ensure its staffing
              with appropriatelyqualifiedstaff (para.46(la));

          (b)    The iLGIC vould maintain the performance based grants         system
                 agreed upon with the Association  (para. 46(2a)).

          (c)    The LGC, in consultation    with the Association, would conduct           an
                 annual review of the performance based grants system,
                 comencing by June 30, 1988, and would institute   appropriate
                 changes to the system as necessary (paras. 45 and 46(2a)).
                           -   34 -
                                                           ANNEXIII
                                                           Page 2 of 2


                                                    in
(d) The HLGHC, and the CMC and the SurveyDepartment liaison
    with MLGHC,would contractconsultants  whose qualifications
    and terms of reference are satisfactory IDA (para.52);
                                           to

(e) The )LGEC would submit to IDA,within ninemouths after the end
    of each fiscal year, long form audit reports prepared anually
    by independent auditors acceptable  to IDA, for Project
    Accounts and for the Special Account (para. 57);

(f) The UPU would prepare semi-annual reports on the overall
    progress of the project and submit them to IDA one month
    following each reporting semester (para. 58); and

(g)   The MLGHCwould submit annually to IDA for its   review an
      updated Operational Action Plan (para. 47).
                                   - 35 -rte


                             EMICIPAL N*CEIINT                                 ROJZCT


                           Table WN POJEC CMST l
                               1:                                                 US I * 29.00Rubpel


                                     Ipes 000                                    U6 000                   ForeaIn

   COFOIIENTS                        g
                            Local Forel Total                   Local Forign Total                         Total

A. Wr. Nueptt ad Policy
  TeMical kRist.ce     7,41 11,144 25,632 267    me                                             915              71?
  Rdidn               12,192 42,160 54,352 435 1,50                                            1,41              7
  Whisil Equipent
         I               134 1,546 1,630    5     55                                                 60          921

                                 61,649 1,664
                            19,114                                    70           2,20 2,917                    761

F.Fintcinl         and
           Nanaguent
   Reouwrce Nobilizatlon
  Tchnical ssistance     20,44927,21647,664                           730               972    1,702           571
   Studies                   2,124    30,618         32,742                76      1,094       1,169             942
  E-,ipaemt                   224      2,576         2,300                 I            92       100           921

                            22,796 60,410 13,206                      314          2,156       2,972           732

C. Skrvice Delivery
   Technical sistance
            b               10,464     9,072 19,536                   374               324      69u           462
   Stvdies                   4,524    24,570 29,094    162                           379       1,039           34i
   Civil karti              63,940    42,560 10b,400 2,200                         1,520       3,100           401
   Solid Kate Equipent         756     5,544 6,300      27                           I99         225           t02

                            79,534 31,746 161,330 2,342                            .,920       5,762           51t

nl. happing
  D.
  Equipmt and pplife        4,994 57,316 62,300                      179           2,047       2,225           m
  Technical ssistance           0 16,900 16,900                        0                600      600         1001
  brial Photography         3,500     0 3,500                        125                 0       125          6?
  Survy, andsap production 11,200     0 11,200                       400                 0       400          0x

                            19,694 74,116 93,300                     703           2,647       3,350          792

E. Non lsource D evlopomnt
  Tehdical Asistance         6,757    32,773 39,530                  241           1,170 1,412                832
   LKul Fdlluships           5,000         0 5,000                   179              0    179                 OZ
  OversesFell"uips               0     4,366 4,361                    0             156   156                IOOI
  *Overeas training & Studyv     0    16,14 16,194                    0             571   573                1001
  Equdwpmnt I looks            235     2,705 2,940                    a              97   105                 m
                           11,93      56,029 68,022                  428          2,001       2,429           922

F. ProjectAdministration    2,215            0       2,295            02                 0       J2              0t
                           amm.      0amu=       a.m.a...     .Uw.......       ,nwwxi    .-   aaaa          ... _ _..
TOMAL COST
   USE    (July 1996)      156,156 334,151 490,306 5,577 11,934 17,511                                        66?

Physical
       Contiencies           633 6,906 7,602                          23            249    272                m
              n
PriceComtinancl            22,797 45,351 03,141                      114           1,620 2,434                6n
                           xm m mm               s      .    Mmxwa                am                   m     m
TUTUL
    PNOJECT
         COST              179,536     5U6,057 6,414 13,30320,216
                                 336,471                                                                      602
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                                      38 -                           ANNEX VI

                                    SRI LANKA

                                             PROJECT
                          MUNICIPAL MANACEMENT

                    Documents Available in the Project File



1.      Final Report: Solid Waste Management Plan for Colombo, Sri Lanka,
Solid Wastes Management Consulting Services, LTD, Connecticut, June 1982.

2.     Sri Lanka: Urban Sector Report, World Bank (Report No. 4640-CE),
Washington, D.C., June, 1984.

3.      Sri Lanka: Water Supply and Sanitation Sector Study, World Bank
(Report No. 4190-CE), Washington, D.C., June 1984.

4.      Sri Lanka: Ministry of Local Government, Housing and Construction,
Management Analysis Center, October, 1985.

5.      Performance Improvement of Urban Local Authorities, Draft Project
Report, Ministry of Local Government, Housing and Construction, Colombo,
January, 1985.

6.      Allocation of Government Crants to Urban Local Authorities on the
Basis of Performance, Urban Program Unit, Colombo, June, 1985.

7.       Performance Improvement of Urban Local Authorities, (4 vols.:
Background Information  on Training,  Background Information    on Management,
Background Information  on Finance,  and Background Information    on Municipal
Services), Urban Program Unit, Ministry of Local Government, Housing and
Construction, Sri Lanka, n.d. (1985).

8.     Performance Review of Urban Local Author ties in Sri Lanka (Phase I
Report), Urban Project Unit, Ministry of Local Government, Housing and
Construction, and Alexander Grant & Co. in association vith Economic
Development Unit and T. P. O'Sullivan and Partners, UNDP/World Bank,
December, 1985.

9.     Proposal for implementation of digital mapping in the Survey
          for large scale mapping in ULAs, Norplan, Oslo, January 1986.
Departmient

10.     Set of detailed Project Cost Tables.

11.     Detailed Project Description.

12.     Consolidated ULA Accounts Table.

13.     Detailed Project Description.
             -   39   -




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                                                                                                                           MUNICIPAL MANAGEMENT PROJECT

                                                                                                                                                                      M*unicipal       councils                           Elevation                 In feet
                                                                                                                                                        *             Urban       councils                                      _            -100
                                                                                                                                                -                     National       roads                                               1O0-500
                                                                                                                                                                      Rallfoads                                                          500-3,
                                                                                                                                                        o             Solected       towns           and villages                         0 (3
                                                                                                                                                                                                                                         3(lS
                                                                                                                                                                 *    Natioanal capital                                                  30-w
                                                                                                       .         \lIdmbm                                              Province       boundarib                 m;w                                 5000
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                                                                                                                                                                                                                                    FEBRUARY                       1986

				
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