DOCUMENT :OF INTERNATIONAL DEVELOPMENT ASSOCUUMON

Not For Ptiblic Use

Report No. P-1383-PAK

REPORT AND RECOMMENDATION

OF THE

PRESIDENT

TO THE

EXECUTIVE DIRECTORS

ON A

PROPOSED CREDIT

TO

THE ISLAMIC REPUBLIC OF PAKISTAN

FOR

.A FLOOD REHABILITATION PROGRAM

February 19, 1974

This report was ;prepared for official use only by the Bank Group. :t may nottbe 'published,quoted or cited without 'Bank Group authorization. The Bank 'Group does not accept

:responsibility for:the accuracy or:completeness of the;report.

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CURF.ICY EQUIVALENTS

US$ 1 Rs 9.9

Rs 1 UsO$ 0.101

.1 million uS$ 101,000

Rs 1 billion US$ 101.0 million

FISCAL YEAR

July 1 - June 30

INTERNATICNAL DEVEIlPMENT ASSOCIATION

REPORT AND RECOMMENDATION OF THE PRESIDENTTO THE EXECUTIVE DIRECTORS ON A PIDPOSED

CREDIT TO THE ISLAMIC REPUBLIC OF PAKISTANFOR A FLOOD REHABILITATION PROGRAM

1. I submit the following report and recommendation on aproposed development credit to the Islamic Republic of Pakistan for theequivalent of US$35 million on standard IDA terms to help finance aflood rehabilitation program and to provide imports to assist the recoveryof the economy from the effects of the flood of August, 1973. US$11.8million would be relent to the Provin-es of Punjab and Sind on standardIDA terms.

PART I - THE ECONOMY

2. The most recent economic report "Economic Situation and Pros-pects of Pakistan" (74-PAK, dated February 16, 1973) was distributed tothe Executive Directors on March 2, 1973 (R73-76). A country data sheetis attached as Annex I.

3. The economy of Pakistan (the former West Pakistan) grew rapidlyduring the Second Plan (l960-65), with GDP increasing at 6.7 percent perannum, compared with 5.6 percent for the entire count.y. This high growthwas spearheaded by an industrial growth of 13.1 percent per annum. How-ever, agriculture grew by only 3.7 percent per annum. West Pakistan'soverall economic growth slowed down somewhat during the Third Plan(1965-70) to about 6 percent per annum. The industrial growth rate fellto 7.6 percent, but agricultural output grew at 5.6 percent annually withthe aid of new high-yielding wheat and rice varieties, reducing, but noteliminating, the food deficit.

4. 1 Though it is hardly apparent in these figures, Pakistan'seconomic development began to encounter a number of difficulties after1965. Import restrictions and other direct controls introduced at thattime became permanent as the shortage of foreign exchange and budgetresources persisted owing to higher defense expenditure, rising foreigndebt service, and decreased nonproject foreign aid. Both net capitalinflow and domestic savings declined, and investment fell from about 22percent in GDP in 1964/65 to about 17 percent in 1969/70, and to only11 percent in 1971/72. The slowdown in industrial growth, along withurban population growth rates of more than 5 percent, led to a rapid risein urban unemployment. In rural areas, it was the larger farmers of WestPakistan who got most of the benefits from the new "green revolution".

5. The econoiy underwent severe strains during 1970/71 and 1971/72,reflecting both political events and prolonged drought which virtuallyhalted the iricrease in agricultural output. In 1972/73, however, the

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aconoiy showed sigas of revival. With a recovery in industrial produc-t on ann a record wheat crop of 7.4 million tons, GDP is estimated toL-1GVe grown oy about 6 percent. Devaluation in May 1972 has been succes-'Ul in making Pakistani exports more competitive in internationalmarikets, in increasing incentives to produce for the local market, andin bringing abouta much more liberal system of import control. Exportsrose by 35 percent in 1971/72 and by another 38 percent in 1972/73. In1972/73, for the first time since 1950/51, the country had a trade sur-plus. The State Bank's foreign exchange reserves, net of of IMNF position,doubled to US$360 million in the year ended June 1973, although theyhave since declined to US$317 million at the end of December.

O. The roajor problems now facing Pakistan are to stimulabe out-Dut and amployment, to control inflation, to increase public andprivate saving and investment, and to improve the distribution of in-come. Despite reasonably rapid growth in 1972/73, the domestic supplyoT essential consumptionr goods is still inadequate. Together with theincreased income resulting from the strong rise in exports, this hasbeen an iiportant factor behind the rapid rise in prices. Wholesale andconsumer prices increased 20 percent or more in 1972/73 reflecting -boththese dor,mestic pressures and sharp increases in international prices forPakistan's prinicipal exports (cotton, cotton textiles, and rice) andimports. Since attempts to contain inflation through increased subsidiesand price controls were having but limited success, the Government lastsummer took strong measures to curb demand. The flood caused a sharpincrease in prices in August and September but since then the cost ofliving index has remained stable.

7. The present high prices of r>akistan's major exports willprobably declirie, with adverse effects on the balance of payments andpublic finances. Recorded investment in real terms has not increasedmuch inthe current year, but there is evidence that unrecorded invest-ment in small-scale industry and agriculture has been substantial. Ifthe necessary saving and investment are forthcoming) Pacistan's growthprospects are good. Exports seem limited more by Supply constraintsrather than lack of demand (with the important exception of the textllequotias in importing countries).

B. Water from Tarbela Dam will probably be available from theend of 197L' and the increasing participation of small and medium-scalefarmers in the "green revolution" could mean that agricultural growthin the :next 5 years will at least match the 5.6 percent annual rate ofthe 1965-70 hnird Plan period. Capital goods, light engineering goods,and agro-based industries also have good growth prospects. The recentrz-se in ohe oil price will obviously be a constraint on Pakistan'sgrowth but -h-e econory does have certain strengths which make it less

Lvuherable -o IThe oil shortage than most developing countries. Electricpower is derived. roughly equally from hydro resources and natural gaswit1 orIly a vei7r small proportion based on oil. Furthermore, new hydro-powerWilI soon ,ecome available; by 1976, bydro-electric power generation isex-aeoted -to _e doible the 1973 level, which will add about 50 percent tototal outp-. Pakistan a'so has a relatively open economy and its rapidly

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growing exports will cushion the effect of oil prices on the balance ofpayments. Provided therefore that Pakistan can obtain foreign capitaland generate domestic savings sufficient to finance the necessaryinvestment, there are reasonable prospects that economic growth couldaverage about 7 percent annually over the next several years.

9. Pakistan's external public debt at the end of December 1972amounted to US$4.8 billion equivalent, of which US$870 million wasundisbursed. Pakistan's debt service, as at present scheduled, wouldrise from USl80 million in 1972/73 to about US$400 million by 1975/76.This rapid increase reflects the interim debt rescheduling operationswhich were arranged in May 1972 and June 1973; it would mean a rise in thedebt service ratio from 18 percent in 1972/73 to aroul 30 percent in1975/76. However, it is not likely that Pakistan will be called upon topay as much as this; countries which are members of the PakistanConsortium have agreed that, after July 1, 1974, Pakistan will not beasked to service debts on account of projects visibly located in Bangla-desh. Moreover, Consortium countries have agreed to consider providingifurther debt relief to Pakistan on a long-teim basis, and the Bank ispreparing a study on this subject for consideration by the Consortium.

10. While such relief would certainly ease Pakistan's debtburden, it will still be desirable for foreign aid to Pakistan to be onterms as concessional as possible. For this reason, the major part ofBank Group aid to Pakistan, including the financing proposed in thisreport, should take the form of IDA credits.

PAPT II - BANK GROUP OPERATIONS IN PAKISTAN

11. The Bank ana IDA made 31 loans and 38 development credits toPakistan (total for East and Wbst) between the start of operations in1952 and June 30, 1971. The Bank and IDA had committed US$1.2 billionto the country, about one-half of which was provided by the Bank andone-half by IDA. Of this amrunt, one loan and 19 development credits,totaling USS4.7 million and US$168.1 million respectively (net ofcancellation) were for projects located wholly within what was thenEast Pakistan and another 10 loans and 8 development credits involvedexpenditures in both East and West Pakistan.

12. In August 1972, Bangladesh became a member of the Bank andIDA, and agreed to take over liability for all lOA credits made forprojects in its territory ihich were not completed. Accordingly, I1credits in arn aggregate amount of US$151.4 million, to provide financingfor such pre-independence projects, have since been made to Bangladesh,and the original credit agreements with Pakistan for such projects havebeen terminated. Bangladesh has recently agreed to enter into dis-cussions with all members of the Pakistan Consortium concerning theassumption of liability for debts on account of projects visibly locatedin Bangladesh. The Bank, too is holding discussions with Bangladesh witha view to the taking over by Bangladesh of liability for the remaining

mancu.nt,s -t.ic wec-r disbursed for the benefit of what is now Bangladeshurider Eanic .oaris and !DA c.-edits to Pakistan.

13. 01 tne US$1.2 billion committed to Pakistan (East and West),V4 se Pakistan received about 72 percent. During its long associationwit-.: Pakistan, the Bank/IDA has been involved in almost all sectors of theeconomy. Until 1972, 38 percent of the total commitments were for thepublic services, 29 percent for agriculture, 22 percent for industry,10 percent for industrial imports, aid 1 percent for education. LendingfLor nublic services amBunted to some US$325 million and included loansanid credits o railwa-ys, electric power, pipelines, the Karachi Port,high.ways, telecorzunications and water supplies. A large part of the

lending for agriculturo was for Indus Basin projects. The lending forindustry has been mostly through the Pakistan Industrial Credit andInvestment Corporation (PTCIC). Annex II contains a s-zrmnary statementof Bank loans and IDA credits as of December 31, 1973, and notes on theexecutiorn of ongoing projects.

14. N.o Barnk loans or IDA credits were made for Pakistan betweenAuggust 197C and October 1972, when a US$50 million credit for industrialfizports was signed. Two credits were approved in FY 73, a second programcredit of US$45 ndllion for industrial imports and a US$18 million creditfor the excansion of Karachi Port. In the current fiscal year, a Bankloan of USS2J5 million for industrial investment, to be administered byPICIC, has already been made. A credit for the provision of an oilterminal for the port of Karachi and a loan of US$35 million for afertilizer project are in course of preparation and will be presented tothe Executive Directors shortly. A project for telecammunications isunder consideration, and projects for highway improvement, for theexpansion of the natural gas transmission system and for seed multi-plication are being prepared. An economic mission was in Pakistan inNovember 1973; one of its objectives was to study the steps needed toencoulwge a program of rural development. The mission's report is bDeingfinaliz3ed. Another mission to review the water resources developmentprogram is now in Pakistan. As a result of this mission's work, projectsin the field of saliniy control and reclamation should be developed.

15. Including undisbursed balances, Pakistan 's debt to the Bankand IDA now represents about 22 percent of its external indebtedness;'oy 1980 th-is ratio migrt increase to about 24 percent. The share ofthe Bank Group ir total debt service is now about 17 percent and isexpected to decrease to 10 percent by 1980.

1fi. ZIC Lhas made nine investments in Pakistan for a total of US$28m 1-.0n off -I-hi US$20.7 million was by way of 'loans and US$7.3 millionDy acu iy :)ar:ticiDations. (They are shown in Arunex II.) About US$11;nl-'ion rWre5mains cutstandL-g. The enterprises assisted by IFC in-clude th%ec inr. t4-e field o" pulp ana paper products, two in textiles,and cone aaci.-. irn steel, cement and fertilizers. IFC is also a shareholderof C IC.

PAR?T III - THt FLWOD OF AUGUST 1973 ANDITS EFFECT ON¶HE ECONOI4Y

17. In August 1973, there was a serious flood in Pakistan for thefirst time in 13 years. The long period during which there had been nofloods itself contributed in some degree to the severity of the damagewhich resulted. The relatively low flows of recent years led to anaccumulation of silt and hence a reduction in the capacity of the riverchannels, the maintenance of the earthen levees or "bunds" suffered andthe staff of the provincial irrigation departments lacked recent experi-ence in dealing with flood emergencies.

18. Trhe heavy monsoon rains caused breaches in the bunds at tenplaces in the Punjab which caused winespread inundation and severedamage. The flooding in Punjab did, however, reduce the flow into thelower Indus in Sind; conseauently, although the bun%as inthe Sind werestrained to the limit, only three breaches occurred and a major catas-trophe was avoided. The flood surge passed to the sea during the firstweek of September but the damage it left behind was greater than thatof any flood in the Indus basin for the last century.

19. Altogether some 10 million acres were inundated, of which 4million were under crops. Nearly ten thousand villages were flooded,about 5 million people were affected, and about 500 lost their lives.The major physical damage (other than the crop losses) was to the floodprotection ana irrigation works, to the transport network, particularlythe roads, and to private dwellings and public buildings. There wasalso some damage to the power and telecommunications systems and toindustrial plants. In the immediate aftermath of this flood, the Goverm-ment's first concern was the rescue andi evacuation of the population.This operation was carried through with conspicuous success. In Sind,under the direction of the Irrigation Department, the Army and localleadership, enormous labor forces were rapidly mobilized to preventbreaching of vital bunds. This collective effort, in which Central andProvincial Government Ministers, senior officials, high-ranking officersand manr Aray units, as wall as thousands of villagers took part, wasremarkably successful. After the flood, the affected communities spon-taneously started to restore housing and essential facilities. Govern-ment authorities immediately put in hand temporary repairs to the canalsirrigating rice and other Kharif crops. Within a month, irrigationsupplies were resumed to most of these areas, and public tubewells werealso rapidly repaired. The Water and Power Development Authority (WAPDA)restored the electric power supply to most areas within a few days. Rail-way services between Karachi and the North were partially maintained bypromptly opening a new branch line on the western bank of the Indus.US AID provided aircraft to transport fuel and essential cargo fromKarachi to the north, and emergency repairs were quickly carried out toclose breaches in railway lines and main roads. Telecommunications be-tween major cities were partly restored after about a month.

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20. The e>fect of -ihe damage to different tyves of assets on theeco-omy as a waol6 va-ies considerably. For example, the damage to therailway is stat_sticaly not very great, but it could have verydelaterious effects on the economy; for this reason, railway reconstruc-tion was accordad the highest priority. Similarly, the repairof the irrigation system(IUS$18 million equivalent) is not a majoriTem in the total damage bill but it is essential to carry it out inorder to avoid serious floods at tho next high water. On the otherhand, the value of dwelling houses destroyed is much greater and isestimated at roughly US$90 million but the full replacement of theseassets will take time.

21. The destruction of agricultural crops forms much the greatestpar-t of the total losses due to the flood. The total value of thecrops destroyed, both standing and in storage, valued at current prices(as of December 1973) is estimated to be US$475 million, of whichUS$160 million represents standing cotton and US$130 million grain instorage, arid the remainder other crops. However, the heavy rains whichcaused the flood also benefited crops in the nonflood areas. Acomprehensive aerial pesticide spraying program for rice was under-taken, with U.S. assistance, in response to the flood and considerablyincreased rice yields. Moreover, the export price of cotton is risingso that despite the heavy damage to this crop, the foreign exchangeearnings in the current year from cotton and cotton products may wellbe higher than last year. As. a consequence of these offsetting factors,the net reduction in the value of major crops from last year's outputmay be only US$150 million.

22. In principle, the total effect of the flood on the economywould be measured by the net reduction in the gross domestic outputcaused by the flood, after taking account of the countermeasures takenby the Government, the efforts of the people themselves, and the addi-tional assistance provided from foreign sources. Wihile it might bepossible to make such a calculation when the statistics for the currentyear are kr.own, it is not possible to make any reliable estimate atthe moment. However, some rough estimates have been made of the effectof the flood on the budget and the balance of paymnents.

23. The flood both reduced the expected budget revenue for thecurrent year, largely because of reduced receipts from export taxes,arid increased expenditures, largely because of increased subsidies onimported wneat and edible oils. The combined effect amounts to aboutUS$23L 4 illi on equ`valent. However, the Goverrnent reacted to thissituation by imposing additional taxes which are expected to bring inabou- US$89 million equivalent, thus reducing the adverse effect ofthe flood to some US$1l5 million equivalent.

24. Tcie flood will "reduce exports and increase imports. Thereduction in potential exoorts is wholly on account of the reductionin raw cotton exoports, which is expected to be about 100,000 tons oflint cotwor, valued at US$lhO million. As against this, exports of rice

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should be about US$40 million greater as a result of the good rainsin the rice-growing areas and the aerial spraying campaign. Hence,the loss of exports due to the flood will probably be about US$'00million.

25. The increase of imports made necessary by the flood is lesseasy to estimate. The best estimate of merchandise imports forl973/74 is US$1,400 million, which is US$00 million more than thepre-flood estimate. However, probably not all of this US$ 400 millionis attributable to the flood; the best estimate of the increase due tothe flood alone would be around US$200 million. Hence, the total im-pact of the flood on the balance of payments, in the form of reducedexports and increased imports combined, is likely to be in the order ofUS$300 million.

26. It is fortunate for Pakistan that the flood came at a timewhen the balance of payments was fairly strong and improving. Despitethe flood, it is expected that the trade deficit this year may notexceed US$300 million. Including invisibles and debt service, thebalance of payments deficit is estimated at US$535 million. To fillthis gap, the expected capital inflow, including the foreign-aidobtained in response to the flood, and including the proceeds of theproposed credit, is likely to be US$475 million, leaving a residual gapof US$60 million to be met from foreign exchange reserves.

PART IV - THE PROPOSED CREDIT

27. As soon as the flood occurred, the Government organizedrelief and reconstruction measures and requested international assist-ance for rehabilitation. On September 17, 1973, the UN Economic andSocial Council requested the Secretary-General to invite the UNDP andthe specialized agencies to provide all possible assistance to Pakistan.To this end, the UN asked the Bank and other specialized agencies tocollaborate with it in a mission to survey the damage and to considerrecommendations for assistance. When the Bank received this requeston September 21, it had already decided, in consultation with thePakistan authorities, to send a small mission to Pakistan under thedirection of Mr. Bernard Chadenet, Vice-President of the Baink. It was,therefore, agreed that the UN and the Bank would collaborate in a jointmission under the joint direction of Dr. Victor Umbricht, SpecialRepresentative of the Secretary-General, and Mr. Chadenet.

28. The joint mission was in Pakistan in October for two and ahalf weeks. It held numerous discussions with officials of the CentralGovermnent in Islamabad, the Punjab Government in Lahore and the SindGovernment in Karachi. It visited flood-affected areas in Punjab andSind Provinces and discussed the problens with local officials andvillagers. The mission was impressed to find that the areas had becomeveritable hives of activity. Work was proceeding simultaneously on

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t-.e repair o- essential facilities such as canals, railways, roads andbridges, trne rehabilitation of buildings and the preparation of theland for the wi-nter crop. At the same time, it was clear that theflood had caused severe hardship for large numbers of people who losttheir homes, possessions, crops, and, in some cases, even their land.

29. The TUN Report of the joint mission was circulated to Execu-tive Directors on November 29 (Sec M73-716). The IBRD report, on whichthe proposal for the present credit is based, is being circulated toExecutive Directors separately (304a-PAK). Negotiations for the pro-posed credit took place in mid-January. The Borrower was representedby Mr. M.L.K. Khalil, Joint Secretary, Ministry of Finance, Planningand Development, Mr. M.Q. Siddiqi, Joint Secretary, Ministry of Fuel,Power and Natural Resources, and Mr. A.M. Mufti, Economic Minister,Embassy of Pakistan. A credit summary is attached as Annex III.

30. The flood had an immediate effect in the form of the destruc-tion of, or damage to, capital assets, and a longer-term effect in theform of the reduction in national output resulting from the damage tocapital assets. External assistance can therefore be of most benefitto the economy if it can both help directly to repair the flood damagebefore the next high water season and, at the same time, help to miti-gate or offset the longer-term economic effects of the flood. The IDAcredit now proposed would contribute to both objectives. Pakistan hasalso received external aid from governmental sources, from the UNsystem and from international voluntary agencies which, by the end ofOctober 1973, amounted to US$60 million equivalent in cash and materials.Some of the items included in this aid are closely related to the pro-posed credit. For example, the U.S. is considering financing spareparts in an amount of some US$4 million for earthmoving and relatedequipment previously supplied by U.S. companies. Canada has contributedC$l million to replace electrical equipment and has agreed to financerailway locomotives and spare parts (C$l million).

31. Most of the work involved in re-pairing the flood damage con-sists of a large number of fairly small items, for example, thereplacement of tubewells and farm equipment, and all the work involvedin rehabilitating villages, including private dwellings. The mostimportant single item which is suitable for Bank Group assistance isthe repair of the river bu:nds, canals and roads. The bunds must berepaired and strengthened by the time of the next high water in August1974 or else there will be another flood. It is estimated that thiswork will cost approximately Rs 223 million or US$22.6 million equiva-ierr. and thle credit would provide US$11.8 rillion to assist with thiswork.

Description of the Credit

32. The it`ms directly related to flood damage which would beLiLnancec under the credit would be:

(a) The restoration of damaged flood bunds, canals, drainsand roads by the Irrigation and Roads Departments ofthe Punjab and Sind Governments (US$9.9 million.)

(b) The reconstruction of about 16 miles of damaged floodbund in Sind which will be carried out by a mechanizedtask force of the international contractor, TarbelaJoint Venture (TJV). (US$1.9 million.)

(c) Technical assistance for a technical review of theflood prediction, warning and protection systems inthe Indus basin. (US$0.2 million.)

(d) Spare parts for agricultural tractors and for farmmachinery and agricultural implements. (US$2 million.)

(e) Spare parts, replacement equipment and materials fortubewells. (US$0.7 million.)

(f) Spare parts for government construction machinery andequipment. (US$0.3 million.)

(g) Replacements for meteorological equipment and associatedcommunications network equipment and spare parts.(US$0.1 million.)

(h) Power drilling rigs for re-drilling tubewells, includingvehicles, equipment, materials and spare parts.(US$0.9 million.)

The total amount of the credit to be used for these purposes would beUS$16 million equivalent.

33. In addition to providing assistance for the direct rehabili-tation of the physical assets damaged by the flood, the credit wouldprovide US$18 million for the purchase of a wide range of importssubstantially the same as those purchased under the credits for indus-trial imports made in 1972 and 1973. These imports include industrialraw materials and intermediate goods, tools and implements, somemachinery and equipment, commercial and industrial vehicles and fertilizer.A complete list of items is contained in Annex III. This part of thecredit would help to offset the deterioration in the balance of paymentsresulting from the flood. The counterpart in rupees of the foreignexchange disbursed under this part of the credit would accrue to theGovernment and would serve to offset in some measure the adverse effectof the flood on the current budget. Thus the credit would serve toassist Pakistan to deal with both the direct and the indirect conse-quences of the flood. The unallocated portion of the credit is $1 million.

Organization and Supervision

34. In order to coordinate the rehabilitation of the flood damage,the Government has established a Coordinating Group consisting of repre-sentatives of the central and provincial ministries and departments

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concerned with the work. This Coordinating Group would review construc-tion schedules, the progress of works, the availability of equipmentand progress of rehabilitating unlserviceable equipment with new spareparts. It would also review the availability of funds required by thecentral and provincial government agencies for the timely completion ofthe work.

35. The rehabilitation of the river bunds and other civil workswould be the responsibility of the Provincial Governments of the Punjaband Sind. A 16-mile section of the bund on the left bank of the Indusin Sind will be carried out under contract by TJV, the internationalcontracting group which has been engaged in the construction of theTarbela Dam on the Indus River. The Government of Sind intends toentrust the supervision of this work to Planning and Development Con-sultants of Karachi. For the balance of the civil works, ProvincialGovernment engineering departments will use their own forces. SirAlexander Gibb and Partners would be employed by the Association tocarry out supervision functions on behalf of the Associaticn withregard to all civil works to be carried out by TJV and the ProvincialGovernment forces. They would perform functions similar to those whichthey have carried out in connection with the Indus and Tarbela DamProjects; the cost of these additional services would be TUS$409,000.

Procurement and Disbursement

36. The Tarbela Joint Venture is the only commercial firm inPakistan with sufficient capacity to carry out the repair work to the16 m:les of damaged flood protective bund in Sind in the time availablebefore the next monsoon. The credit would cover the foreign exchangecost of the contract for this work negotiated between the Governmentof Sind and TJV. The remaining civil works in Punjab and Sind will becarried out by the Provincial Governments, using their own labor andequipment and some equipment hired from Central Government agencies.The credit would meet 50 percent of the total expenditures, estimated atUS$19.8 million equivalent, by the Provincial authorities for this pur-pose;this would involve financing of local expenditures, amounting toperhaps US$5 to 6 million equivalent.

37. Because of the need to complete the bund repair work byJuly 197h, the Government began to work as soon as it could. In order tohelp finance the work which has already been done, the portion of thecredit to be used for this purpose would include retroactive financing ofexpenditures made since August 16, 1973, up to a limit of US$4 million.

38. The spare parts for tractors and agricultural machinery andthe replacement items for tubewells, and meteorological equipment wouldbe proprietary items for existing installations, and internationalcompetitive bidding would not therefore be practical. In the interestsof standardization and in order to place contracts for the $900,000worth of drilling rigs as rapidly as possible, it is proposed to waiveinternational competitive bidding for these items, which would be pro-cured directly. Disbursement would be on the basis of the c.i.f. costof these items.

39. The US$18 million of industrial imports to be purchased underthe proposed credit would be predominantly direct imports by privatefirms through normal commercial channels. The Trading Corporation ofPakistan (TCP), a state corporation, is the designated importer of alimited number of items on which economies can be secured by importingin bulk. The Government has agreed that goods procured by TCP out of theproposed credit under contracts costing US$100,000 or more would be pro-cured on the basis of international competition. Disbursement of thispart of the credit would be on the basis of reimbursement for the c.i.f.cost of qualifying imports. The State Bank of Pakistan would be respons-ible for collecting, through nominated banks, invoices, evidence of ship-ment and evidence that the supplier has received payment.

PART V - LEGAL INSTRUHENTS AND AUTHORITY

40. The draft Development Credit Agreement between the IslamicRepublic of Pakistan and the International Development Association, theRecommendation of the Committee provided for in Article V, Section l(d)of the Articles bf Agreement, and the text of a resolution approvingthe proposed Development Credit are being distributed to the ExecutiveDirectors separately. In view of the fact that restoration of civilworks damaged by the floods is to be carried out by the Provinces ofPunjab and Sind, the Development Credit Agreement makes it a conditionof effectiveness that Pakistan and the provinces shall have madearrangements satisfactory to the Association for the carrying out ofthese works. The terms and conditions for these arrangements are setout in Schedule 4 to the Development Credit Agreement.

41. I am satisfied that the proposed credit would comply withthe Articles of Agreement of the Association.

PART VI - RECOMMENDATION

42. In formulating this proposal, it has not been possible totake full account of the recent increases in petroleum prices. How-ever, available information indicates that the proposed credit remainsfully justified.

43. I recommend that the Executive Directors approve the pro-posed Credit.

Robert S. McNamaraPresident

by J. Burke Knapp

Attachments

February 19, 1974

WNELX I

DSUNTRY DATA - PAKISTAN Pge I ot3 pag0s

AREA POPULATION DENSITY806,530 krm2 6-378Ullion (mid-1972) 79 Per km

2

208 Per km2of arable land

SOCIAL INDICATORS

PAKISTAN L.di. Reference Countries Fr

1960STAN I! 1Sdi ork P97Co

0N?PFSR CAF'ITA 05$ (ATLAS BASIS) 2 81 129 110 310 3,100

180GRAPhICCrue 'iry-th rate (per thousand) 51 43 38 /b 40 17Crude death rate (per thousand) 24 16 16 lb 13 12Infant rortality rate (per thousand live births) 140 115 120-140 tb 153 Ic 15Life a3pectancy at birth (years) 49 52 49 55 72

Gross reproduction rate /2 3.7 2.9 2.9 1.2Population grovth rate 2.7 2.8 2.3 2.5 0.9 IdPopulation growth rate - urban 4.8 4.6 3.5 4.1 2.4 /e

Age structure (per cent)0-11, 42 45 42 42 24

1.5-61. 53 5I 55 54 6365 and over 5 4 3 4 13

De,Iendency ratio 4 1.6 1.9 1.2 If 1.0 j 0.9 /h

Urban population as percent of total 22 28 20 38 70 /eFamily planningi N.s of acoeptors ctmlative (thoua. , , 282

No- of users (% of married waien) 4.4

Y - LOWWrTTotal Iabor force (thousands) 13,985 17,616 221,000 ji 15,830 20,439 /i

Percentage employed in agriculture 60 55 71 Tb 66 15 tjPercentage uneployed - 6.0 2.1 t

IN-4X DISTRIBUTIONlmercent of national income received by highest 5%lercent of national income received by highest 20%Fercent of national income received by lowest 20%Percent of national income received by lowast 10%

MISTRIBUTION OF LAND OWNERSHIPS owned by top 10% or owners 46.2% owned by smalleat 10% of owners 0.4

HSALTh AND NUTRITIONPopulation per physician 7,490 4.500 4,000 /b 2,220 750Populatio. per nursing person 14,930 9,290 4,150 Tb 1,630 260Population per hospital bed 2,080 2,060 1,830 Ti 490 110

Per capita caIorie supply as % of requirements /5 84 /I 110 In 120Per capita protein supply, total (grass per dayr L6 48 /l 78 T. 103Of which, aniral and pulse

Death rate 1-1, years /7 15 /I 22 In

EDUCATIONAdjusted /8 primary school enrollment ratio 28 L 44 In 79 Jo 77 /i 120 /hAdjusted 7g secondary school enrollment ratio 15 Ic 17 T. 28 Jq 25 /q 70 /hYears of schooling provided, first and second level 10 IT 10 12 13 12Vocational enrollment as % of sec. school enrollnet 1.4 1.6 6 /r 14 23 /hAdult literacy rate % 17 36 IbIs 46 Ic

HOUSIW1Average No. of parsons per room (urban) 2.4 0.9 LIPercent of occupied units without piped water 2 49Acuo.s to electricity (as % of total population) 3 99 /IPercent of fural populatiom connected to electricity ' 989

CONSUN?TIO8IRado receiv-rs per 1000 population 6 /t 22 /t 21 87 314

Passenger cars per 1000 population 1.4 Iu 2.1 TIc I 1 4.0 253.0 lbElectric power consumption (kwh p.c.) 25 Iv 112 T/s IO oo/ 241 2 781Newsprint consunptinn p.c. kg per year 11 . 2.0 12.01

Notes Figures refer either to the latest perioda or to account of enviroomental temperature, body weights, andthe Iatent yearn. Latest periods refer in prinoiple to distribution by age and sex of national populatione.the years 1956-60 or 1966-70; the l-tent years in prin- 6 Protein atandard. (requirements) for all countries as eatab-ciple t. 1960 and 1970. Only significantly different limhed by USDA Economic Research Service provide for a minimumperiods cr years a,r uotsfoted aeparately. allowance Of 60 gras of total protein per day, and 20 grass of/h The Per Capita ONP estimates for years other than 1960 animal and pulae protein, of which 10 grass shouid be animal

are at market prices, calculated by the sane conversion protein. These standards are aomewhat lower than those of 75teohnique aa the 1972 Nbrld Bank Atl. grams of total protein and 23 grams of animal protein as an

/2 Average camber uf daughterm per woman of reproductive average for the world, proposed by FAD in the Third World Foodage. Survey.

/3 Population growth ratec are for the deades aewding in Jo Some studies have euggested that crude death rates or childrmn1960 and 1970. ageas 1 through I may be used an a first approximation index ofRatio of under 15 and 65 and over age brackets to malnutrition.those in labor force bracket of ages 15 through 64. /8 Percentage enrolled of oorresponding population of school ageFAO reference standards represent physiological re- as defined for each country.qllirenents for normal activity and health, taking

W-. I..kic..:::.... ly Lb 1971 -.-t-Latr; L 1967; /d 1963-70; /I Over 2,000 popatl:.ni; If 1971, ratio of populationcolde r 1 , :l1,S :cd ver 6 ,,t. Ihor force in uge group 15-59; /& Ratio of populatio. under I5 and 65 and over to total labor

r:: IO6'); /i 1971. A.l.D. t.timate of lahor forte in age group 15-59. 18D report giues a figure of 180.4 million.:ut.d uh, th. 1971 p:9ou lat-oc crosu.. The difftrence 1c due to changes in the definition of a vorkor. In the 1971 rennu-p,r- -r- , r -sIfied only on the basiu of their oin activity. Irrepecti-r of whether or not they did coy economic vork;

Jo 196; Lk 196b; /I 1968/69; Le 1964/66; /n Primry achool level grade I through 5; /I Secondary school level gradeh thr:ugh 10; /o lp to ontritulato (10th gr.de); /o Enti.ate which inclades overage students; /r 1965; /I Populationof 10 y:.ar. and over based un It sample data of 1971; It Data relate to radio licenses issued; /I Data based on comberof -Ito,r cor., jeeps, station agons and motor tanis registered; /v 1968, based on I8RD popalatios entimnte of 57 millioc;

/v Data relate to electricity generated and hence include station use and transei.sive losrae also.

ANIF1 1

PAKISTAN - ECONOMIC DRVIDPRIDl DATAPae2o3Pgs(Amoimta in millions of U.S. dollars);

Actua.l Projected 19160- 1965 - 1970 - 1973 1960 1970 19781960 1965 1970 3973 1975 1.978 1965 1970 1975 19781

NAT IONAL. ACCOkWNI$3-Year Average at 1967- 199Pie& Ebhnel7aŽs Average Annual Growth Rates As Percent of Gny

Giross, Domestic Product 4877.6 6660.6 9067.7 10194.3 11476.41457 6.4 6.4 4.8 6.7 98.6 100.8 97.9Gains f'rom Terms of T'rade () 69.1 101.9 -71.8 204.9 233.5 308.6 . .. .1.4 -0.8 2.1Gross Domestic Income -4946.7 6 7W) RU3T I nr inT7W:Tq tZr77 6.5 5.9 5.4 6.6 TU WWrar Iwo.

Import (inel. NFS) 621.0 1067.3 1016.0 1173.0 1395.0 1661.6 11.4 -1.0 6.5 7.2 12.6 11.3 11.6Exports ..(imp)ort capacity) 323.9 529.4 679.9 828.2 971.7 1351.2 10.3 5.1 7.4 9.9 6.5 7.6 9.3

Resource Cap ~~~~~~ ~~297.1 537.9 336.1 3448 47T 3730.4 , . .. r T7 2 .3

Consumption Excpenditures 4423.9 5946.9 7943.7 9579.4 10683.0 12514.2 6.1 6.0 .6.1 5.4 89.4 88.1 87.1Investment 1 (incl. stocks) 819.9 1353.5 1387.8 1164.4 1450.2 2183.8 10.6 0.5 0.9 13.4 16.6 15.4 15.2

Domestic Savinigs 522.8 815.6 1051.7 819.8 1026.9 1853.4 9.3 5.2 -0.8 19.6 10.6 11.7 12.9National Savings 516.9 788.8 1009.1 884.9 1088.7 1912.6 8.8 5.7 1.5 17.9 10.4 11.2 13.

MERKHANDISEJ TRADE Annual Data at Current Prices As Percent of Total

I apertsCapita&l Goods . . .

Fluels and intermediate goods . ..

Consumption Goods.. .. .

T,tal Mrchcl. imports (eif) -NT 8WT ~ 7r 7W.~9 TT337z -TZfl7 10.5 -0.8 8.4 9.0 100.0 100.0o -100.0

ExportsPrimary Pri-duetsRuns atalu,red GoodsTo,tal Mcrch. Exports (fob) 255.7 3782.4 544.8 650.0 8.56.3 1250.2 8.4 7.3 9.5 14.0 100.0 100.0 100.0Tour i is sod Hord,r Trade

Mercenandise Trade indices Average 1967-69 - 100Export Price index 91.20 94.06 87.08 125.15 131.49 141.60 0.62 -1.53 8.6 2.5Import Price Index 104.67 70.68 99.75 95.09 99.90 107.58 -7.55 7.13 0.0 2.5Terms of Trade Index 87.13 133.09 87.30 131.62 131.62 131.62 8.84 -8.08 8.5 0.0Exports Volume Irdex 57.03 82.70 127.26 105.65 132.52 1729. W 7.72 9.00 0.81 11.20

VALUE ADDED BY SECTOR Annual Data at 1967-6 9Prices and Exchange SZates Average Annqual Growth Rates As Percent of Total

Agriculture 2030 24,42 3212 3407 3 .7 5.6 45.3 38.2Industry and Mining 4/ 674 1249 1796 1996 13.1 7.6 15.0 21.3Service 1 778 2521 3409 3874 7. 3 6. 2 3.7...L ...40.s -

Total -4482 624 82 276. 7 6. 2 100.0 100.0

ISIBLIC FINANCE 3/ As Percent of GD?(Cnt-ral Government)

Current Receipts .. .. 1154 1744 .. 12.2..urrcnt Expenditures . . 9 28 1134 .. 9.8BuAsrlgtary Savings . .. 2 26 610 .. 19.6

Other Public Sector I/ .. .. -90 -272 .. -0.9Public Sector Investment 2/ . .. 64 2 584 .. 6.8

US $ millionCIUERENT1 EXPENDITURE DETAILS Actual Prelim. Est. Proj. DIETAIL OR At end 19 P and ER

As % Total Current Expend. j 1 19 19- 19 19 PUBLIC SECTOR First Plan % ol TotalEducation .. . . . . NVESTNENT PROGRAM (19 / -19 /Othe!r Social Services .. . . ocial Sectors.Agriculture .. . . . .Agriculture

Other Economic Services . . . . .. Industry and Miniing.Adminintration and Defense .. . . . .Power

tithe-r .. . . . .Transport and commuinications.Tots.] Current Expenditures Other.

______________________________________________________________ Total Expenditures

:0 tk.TTEI) INDICATIIRS 1960- 1965- 1970- 1973- FINANCING(Caliculated from 5-year averaged data) 1965 1970 1975 1978Average- ICOR 3.0 2.8 1.9 22" Public Sector SavingsImport. Elasticity .2.0 -0.15 2.6 0.5 Programi aid counterpart?dsrginal Dbmestic Savings Rate 16.1 10.6 -11.9 20.0 Foreign Project AidMarginal National Saving Rate 15.2 9.9 1.8 20.0 Total F'inancing

IAIIOR FORCE AND Total Labor Force Value Added Per Workier (967r-6e9 Prices & Exe. Rates)OUTPUT PER WORKEii In Millions % of Totalf 19 60 -70 Is U.-DoblLars Perceint o verg 19 60 -70

19 60 19 70 19 60 1970o Growth Rate 19 60 19 70 1960 19 70 Growth Rate

Agr' cu itur, 8.3 9.6 59.6 54.8 1.5 244 335 74.8 70.1 3.2Indlustry 2. 2 3.4 16.0 19.4 4.3 306 526 95.0 110.4 5.6Service 3.1 4.2 22.2 2~3. 6 3.0 574 812 178.2 169.8 3.5

Total ~~~~~ ~~~~13.6 17. 2 97. 8 97822 480 10.40U., I I Lred 0.3 0.4, 2. 2 2.2 - - -

1.'cal 13.9~~~~~~- 17.6- 100.0 100.0- 2.3 322 478 100. 100.0 4.0

not applicable -nil or negligible.nut availabl.e less than half the

smal1lest unit shown

I I :5 igs of ie r,,vli...iil ilivi,rnsent and, :,utunue... b,odies,.

71 ii.Iinr. igveitnli '' Cet:-ral -isd proviuc-ial C;,ernr-eot and -Lutnicocs bo,dies.A! i-s r'pc i d i--o-l .n sch.eg, rules ,I R-. 4. 162 per W.S $ . Dta ioc 1972213 .1cc budget esti..stea.

/,/ Iis Iii,-. e.nsssI-c 1nIn , sining so ear ig...unsruction, ectroIv gas, wafer and sanitary services;.

NlANCE OF PAIKENTSJ EMTmiU AL A,3ISSTA'iCE AND DEBT

tntein millions of U.S dome at corest prices)

Avg. Abo,25

1969!70 1970171 19 1972.73 Ih3/74 1974/75 P95/76 1976177 12 rPtt-h7l

oMMtiART RALANCE OF PiYMEiTS

pc,rts (in-l. NF5) 951 1 200 1,271 1 392 1,502 1,6.7 3,476 6.2! -s1rto14il. NFl) 1,013 1,600 1.785 1.961 2.166 2 3h7 6.232 df4WinO b&Eulne,bB 7I-ii) - .87 - 400 - 514 - 569 - 664 - 170 -2,756

rrtere-t (ot) /Z - 98 - 113 - 126L3 - 1311 . 134L _ 1-6/i - 167 4.7Dire-t L-'etateet IIo. -20 - 20 - 21 - 22 - 3 - 23 - 32 3.6;9reers' Reittace 130 130 136 142 147 152 205 3.6C'crarc Transfers CT-) 31 30 30 30 . 0 10 30Balacre er Current Acc_nats 373 " 495 -

'route Dirict intemant 10 10 i0 10 10 10 10ofricial Capital Grants 21 20 20 20 20 20 20

PNhlic h4.?T loans1i,borsoeents 344 410 400/ 400 450 452 400N-Flr uyc ra t/ nts2 89 162 27212 2 633 221211A 0.9Cc oar orento - - - -¶! -n flY ~ *TiZ 100 154 123

-erayments _ __ 10 10 10 1O l0 1 0 -

Ljet. wabur en9s Aotttaln3 etTouted71*pt:17 iiTrannoctŽon -n.e.. - 6 19 3.9 39 1 9 1077CheNW .n Net Reeser- +152 fIEBT AND DEBT SBEVICE

Public Debt Out. & 4,151GHAt4r "I'll 10421 mio11" lOfficiAl Grontto Oruet-like 21 Interest on Public Debt /2 90

Repayeeets et Public Debt- Ft:lic tM&LT umsa Total Public Debt Serrice 1E7- R Othe r Debt Service (ret.) 10TDA 95 Total Debt Se-oie (set) 197Itter

Otrer Mel tllaterul 39 DBrden no Report E-rninii CtOnnerteente 346r;tpplier - Public Debt Service 11.4Firanci:.l L-U:ttuttons - Total Debt Service 00.6(beads - 1D000.rect CorseTt. The. 21.4Ptublic lo.rso 0.0.i.

Total Public StAl Tou~rs - - - - t5r A-erege Tertts o Poblie Debt

Actoal De,bt Outstaetnlig on Dec. T31 19721 int. as i Prior Yco DDCD 2.6EitTERiiAd DePE i.bursed Onlyereet ItAort. us i Prior Year3 lne 2.4ci ld B.ank 328 0.4cDA 366 9 4 ITD Debt Put. & Disbursed ilo 4.Other c tltiloteeal 11 0.3 u % Public Debt C&D '.6_e-rnmento % 72 " 05 i PUoli Le Dbt Service 29.0

fitianctul Instittitne 76 1.9 rDA D3bt Put. & Disbursed 4431.norda - - % Public Debt OlD 10.6Public Debts n.e.i - -0 r Public Debt Seor-i t27To:al Public MALT Debt 3.910 LOO.0

0:h.r iMhLT Debts00cr't -te r'.Dht (dieb. onLy)

ut appli-tblr a strff *etlate A f Ai1Lt 6ictelgliyadt3d 18diAib. /4 End of Peciod.c0 c 1at Tools - intl er negilgiibIe '2 cuse. 15 Occludes sic icontructed no acood-c of.. ot1 a.zicl.abi s eparatly -- 1"s thus half the , tMediAted by sbnrt-tere dent relief - B-egledebh prior no December 1971.nut. itcL-ded Ic Totul smallest coit shbsn sd re-ebdieg.

L3 Reduced by 15 portent unu.cojec of pr-Jec-eoLstbly rested Is b-aLsdseh.

AMiaS\-E IIPage 1 Or o 6 ar2ec

THE STATUS OF BANK GROUP OPERATIONS IN PAKISTAiJ

A. STATEMENT OF BAINK LOAINS ANID IDA C,LEDI`S(as at December 31, 1073)

US $ Mil] OI1Loan or Amount (less ance-]1ation3,'CreditNumber Year Borrower Bank IDA ITnCis d;

Fifty - five loans and credits fully disburseda/ 393.3 k 291.2

266 1960 Pakistan Indus (Rultipur-pose) 30.0 - 1' .50 1964 Pakistan Education - 8.5 2.3

376 1964 KarachiPort Port Development 17.0 - 2.3

548 1968 Pakistan Tarbela (Miultipurpose) 25.0 - 25.0'1)45 1969 Pakistan Telecozmaunications - 8.7 0.5590 1°69 P10IC Industrial Development 40.0 - 3.1621 1969 Pakistan Western Railway 14.5 - 6.1.157 1969 Pakistan Agricultural Bankc III - 30.0 6.3177 1970 Pakistan Industrial Development (IDBP) - 20.0 -L0. U

696 1970 SNGPL Sui NTothern Gcs III 19.2 - 1.0186 1970 Pakistan Telecommunications II - 15.0 7.2206 1970 Pakistan Engineering Education - 4.0 14.0213 1970 Palcistan Power Distribution - 23.0 20.1396 1973 Pakistan Industrial Import Program II - h5.0 19.9422 1973 Pakistan Karachi Port III - 18.0 1 7.6

Total 599.5 463.h 1943. of which has been repaid 240.1 1.2

Total now outstanding 359.4 462.2

Amount sold 22.3of which has been repaid 22.2 0.1

Total now held by Bank and IDA-/ 359.3 h62.2

Total undisbursed 54.8 88.7

a/ Includes the disbursed portion of loans and credits wholly or partly for proJectsin the former East Pakistan except for those portions of credits which have beennotionally repaid out of credits reactivated for Bangladesh.

b/ Prior to exchange adjustments.

ANNX IIPage 2o of 6 pages

B. STATUEINT OF IFC INVESTMENTS (as at December 33, 1973)

Amount in US $ Kil1 ionYear Obligor Type of Business Loan Equit Tc,al

1958 Steel Corp. of Pakistan Rolled Steel Products 0.63 - 0.63Ltd.

1959 Adamjee Industries Ltd. Textiles 0.75 0 O.75

1962- Ismail Cement Industries 5.25 0.52.6l965 Ltd.

1963- PICIC Development Financing - 0.1i49 0.91969

1965 Crescent Jute Products Textiles 1.95 - 1.95

1965 Packages Ltd. Paper Products 2.31 0.84 3.15

1967 Pakistan Paper Corp. Ltd. Paper 3.20 2.02 5.22

1969 Dawood Hercules Chemicals Ltd. Fertilizers 1.00 2.92 3.92

1969 Karnaphuli Paper Mills Ltd. Pulp and Paper 5.60 0.63 6.23

Total Gross Commitments 20.69 7.32 28.01

Less Cancellations, Terminations,Repayments and Sales 13.37 0.91 14.25

Total Commitments Now Held by IFC 7.32 6.J4a 13.73

ANNEX IIPage 3 of 6 Pages

C. Projects in Execution /

Loan No. 266 Incdus Basin: US $90 Million Loan of September 19,1960; Closing Date: December .1, 127

All major project items (except Tarbela Dam) have been completed.Some minor remedial works have still to be finished and settlement remainsto be made on a number of claims. Further disbursement of this Loan (main-ly for Tarbela Dam), which was interrupted in 1971 by agreement with theUnited States in order to disburse first the loan contribution of the UnitedStates to the Indus Basin Development Fund, has now resumed. Work on theTarbela Dam project is proceeding on schedule. The original Closing Dateof September 30, 1973, has been extended to December 31, 1975.

Cr. No. 5O Education: US ;8.5 Million Credit of March 25, 1964;Closing Date: June 30. lO72

The project suffered initial delays due to administrativedifficulties, shortages of building materials, lack of local funds, the1971 war and, more recently, extensive floods. The pace of implementationhas improved but problems of equipment procurement and shortages of buildingmaterials remain. All construction contracts have been awarded, of whichabout 76 percent are completed. Equipment installed at the agriculturaluniversity represents about 80 percent of the total allocation and at thetechnical institutes, 90 percent of the total allocated. The project isexpected to be completed by the new Closing Date.

Loan No. 376 Karachi Port: US $17.0 Million Loan of May 14. 196;Closing Date: June 30, 1974

The execution of this project has been delayed substantially. Thetotal cost of the project has increased from the original estimate ol US $37.5million to US $47.0 million but there has been no charnge in the foreign ex-change component of US $17.0 million. This increase has not materially af-fected the economic justification of the project. The project was firstdelayed by difficulties withthe original design of the wharves. In 1967-work had to be suspended and the wharves redesigned. Later, it was foundthat more extensive soil investigation was necessary, which meant furtherdelay. The war in 1971 and labor troubles also contributed to the delay.The difficulties now appear to have been brought under control and theworks are now approaching completion. The dredging operations, althoughmore than 90 percent complete, are still behind schedule but are now beingexpedited. The original Closing Date of March 31, 1969, was extended firstto June 30, 1972, and then to June 30, 1974, the current date.

2/ These notes are designed to inform the Executive Directors regardingthe progress of projects in execution, and in particular to reportany problems which are being encountered, and the action being takento remedy them. They should be read in this sense, and with theunderstanding that they do not p_--port to present a balanced evalua-tion of strengths and weaknesses in project execution.

ANNEX r I

Page 4 of 6 Pages

Loan Nio. 548 Tarbela Dam; US $25.0 Million Loan of July 10'968; Crlosing Date: December 31, 1977

The Loan is intended for residual financing, and no disburse-ments are exmected until FY1976. Good progress is being maintained onthe project. On September 29, 1973, the Indus ,Rver was diverted throughtunnels on schedule to enable the final stage - the construction of theclosure section of the dam - to be undertaken. The main civil works con-tractors have submitted suostantial claims on accoant of labor costs, in-

'latior and the 1972 devaluation of the Rupee which are being consideredby a special Government committee.

Cr. No. i45 Telecommunications; US $16.0 Million Credit ofMarch 6, 1969; Closing aata: December 31, 19T

Cr. No. 186 Telecommunications; US $15.0 Million, Credit ofMay 22, 1970; Closing Date: December 31, 1975

There have been delays in implementing both these credits.The original proposals allowed for the expenditure under the two creditsof about US $11.3 million in the former East Wing and U3 $19.7 million

in the West. US $5.2 million of the undisbursed balance of Credit 15-PAKwas cancelled in November 1972 after a telecommunications project toBangladesh was approved. The Closing Date of 14;5-PAK was extended fromthe original date of December 31, 1972 to December 31, 1974. The ClosingDate of Credit 186-PAK has been extended from December 31, 1973 toDecember 31, 1975; and the credit proceeds are reallocated to reflect theincreased costs of imports resulting from the realingnent of curren-cies. This will also allow GOP more time for the reorganization of the

Pakistan Telephone and Telegraph Department, the introduction of an effec-tive accounting system and the completion of the installation of equip-ment under the Credits.

Loan No. 590 Development Finance Company - PICIC; U5 $40.0Million Loan of March 21, 1969; Closing Date:September 30, 1975

This Loan has been fully committed. The original Closing Dateof March 31, 197T, has been extended to September 30, 1975, to enabledisbursements to be made for the last subproject.

Loan No. 621 Railways; US $l4.5 Million Loan of June 26, 1969;Closing Date: December 31, 1975

Progress on (a) the renewal and improvement of track and bridges,and (b) rehabilitation and improvement of workshops and depots has beensatisfactory. However, the proposal for the expansion of the marshallingyard at Samasata has been dropped and the first phase of a new marshallingyard at Pipri has been included instead. The change was based on afeasibility study conducted by consultants (SOFRERAIL, France), who indicatedthat a new yard at Pinri would be economically and ooerati-na1ly preferable.

ANNEX IIPage 5 of 6 Pages

The original Closing Date of December 31, 1972, has been extended bythree years to December 31, 1975, to allow time for Pipri yard to bebuilt and the balance of the loan has been reallocated. PWR has alsoreappointed the consultants for a period of 18 months.

Cr. No. 157 Agricultural Development Bank: US$30.0 MillionCredit of June 26, 1969; Closing Date: June 30,197

Disbursements under this Credit are very much behind theoriginal schedule. Delays in issuing import licenses and slowness inlending for tubewells because of difficulties in providing electricalconnections were originally responsible for this delay. The originalClosing Date of June 30, 1972, has been extended to June 30, 197T.

Cr. No. 177 Development Finance Company - IDBP: US$20.0 Mil-lion Credit of February 11, 1970; Closing Date:December 31, 1977

Although IDBP has restored its organizational effectiveness,the loss of the former East Pakistan had far-reaching repercussions onits financial position. Pending a satisfactory solution of this problem,and to enable IDBP to resume lending to industry, the unwithdrawn amountof the credit has been converted into a government owned fund administeredby IDBP as an agent of the Government. The original Closing Date ofDecember 31, 197t4 has been postponed to December 31, 1977.

Loan No. 696 Gas Transmission: US$19.2 Million Loan of June 29,1970; Closing Date: December 31, 1974

The 1971 war has delayed execution of this project and alsocaused a small increase in its cost (less than 3%). The project was sub-stantially completed in July 1973, but to enable disbursements to bemade for retention payments and some equipment procurement, the original"losing Date of June 30, 1973, has been extended to December 31, 1974.

Cr. No. 206 Engineering Education: US$ 4.0 Million Credit ofJune 29, 1970; Closing Date: December 31, 1976

Construction of the College is expected to start early in1974. Civil works and equipment procurement will probably be completedbefore the closing date but the staff development program has been slowto start and may extend beyond that time. The cost of the civil worksis expected to increase from Ra 16 million to Rs 31 million. But dueto the devaluation of the ruipee, the credit amount will be sufficient tomeet IDA's share of this increase. However, the Government will need toprovide an additional Rs 6.7 million to make up its share.

ANNEX IIPage 6 of 6 Pages

Cr. No. 213 Power Transmission and Distribution: US $23.0Million Credit of AuXt 24 170; Closing Date:December 317 1975

Implementation of the project is now proceeding much moresatisfactorily. Contracts to the value of about US $17.0 millionequivalent have been placed. Orders for remaining equipment are ex-pected to be placed soon. The first consignments of equipment arebeginning to arrive in Pakistan. Some difficulty has been experiencedin acquiring the necessary sites for substations and the deliveryof six 30MVA transformers has bad to be delayed. WAPDA is making everyeffort to speed up acquisition proceedings. As of January 31, 1974US $3.18 million had been disbursed. The original Closing Date ofDecember 31, 1974 has been postponed to December 31, 1975.

Cr. No. 398 Industrial Import IIs US $45.0 Million Creditof June 15. _1973;, Closiag Date: September _30, 1974

Disbursements will be completed by the present Closing Date ofSeptember 30, 1974.

Cr. No. 422 Third Karachi Port: US $18.0 Million Credit ofJuly 19, 1973; Closing Date: June 30, 1979

Credit was made effective on December 14, 1973.

Loan No. 961 Industrial Investment: US $25.0 MillionLoan of January 31, 1974; Closing Date:

Not yet effective.

ANNEX IIIPage 1 of 3 Pages

PAKISTAN-FLOOD REHABILITATION PROGRAM CREDIT

CREDIT SUMMARY

Borrower: Islamic Republic of Pakistan

Amount: US$35 million equivalent

Terms: Standard

Relending Terms: US$11.8 mi.llion will be relent to theProvinces of Punjab and Sind onstandard IDA terms.

Project Description: The Credit will finance the following items:

(a) restoration or reconstruction of flood-damaged bunds, canals, drains and roads;

(b) importation of spare parts, machineryand equipment to replace or rehabilitatemachinery, equipment, or installationsdamaged by the flood or to meet additionaldemand caused by the flood; items wouldinclude spare parts for agriculturalmachinery and agricultural implements;spares, equipment and materials for tube-wells; power drilling rigs together withvehicles, materials and spare parts;spares for construction equipment andmeteorological equipment;

(c) importation of industrial raw and semi-finished materials and components,miscellaneous items of manufacturingequipment, commercial and industrialvehicles and fertilizer, to supportPakistan's program of economic develop-ment and to assist the recovery of theeconomy from the adverse effects of the1973 floods; and,

(d) consulting services for flood prediction,warning and protection studies.

ATNEX IIIlrNg 2O 3 pages

Estimated Disbursements: January-March '74 US$1 million

April-June '74 US$10 million

July-September '7h US$12 million

October-December '7h US$12 million

Procurement Arrangements: One contract for the repair of 16 miles offlood bunds in Sind has been negotiatedbetween the Government of Sind and TarbelaJoint Venture, the contractor working onTarbela dam to assure that work could becompleted before next monsoon. Other civilworks will be carried out by force account.Some of the equipment to be imported forflood damage restoration consists of proprie-tary items and will be purchased directlyfrom the original manufacturers. The drillingrigs will be purchased without internationalcompetitive bidding in the interests ofstandardization and in order to avoid delay.All other imports will be purchased throughcommercial channels, except that TCP importsabove $100,000 would be by internationalcompetition.

Retroactive financing up to a limit of US$4million has been included for the civil works.

The following types of goods are eligible forreimbursement under the industrial importcategory:

Iron and steel,Copper, nickel,aluminum, lead,organic and otherbase metals.

Raw vegetable materialsand animal and vegetablefats and oils.

Chemicals, includingpesticides.Fertilizers.Plastic materials,rubber and syntheticrubber.

(Conttd)

ANNEX IIIPage 3 of 3 pages

Raw hides and skins.

Industrial timber andglass sheets.

Pulp, paper and paper-making materials.

Man-made fibers, animalhair and vegetable textilematerials.

Fine birch and graphite.

Tools and implements.

Machinery and mechanicalappliances.

Electrical machineryand equipment.

Commercial andindustrial vehicles.

Technical Assistance: Consultants will be employed to assist theCentral Flood Committee in its review ofthe flood-warning and protection systems,and to advise in the initial planning ofstudies for interprovincial flood protec-tion projects.

IBRD 10354- |II FEBRUARY 1973

620 660 700 740

PAKI STAN U. S. SR. -320 ____PRIMARY ROADS -.-. -32O-

SECONDARY ROADS

-+----I-RAILWAYS .

AIRPORTS < c L_ J M

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