Document of The World Bank

Report No: 29327

IMPLEMENTATION COMPLETION REPORT(IDA-37930)

ON

A CREDIT

IN THE AMOUNT OF SDR 217.6 MILLION (US$300 MILLION EQUIVALENT)

TO

THE PEOPLE'S REPUBLIC OF BANGLADESH

FOR A

FIRST DEVELOPMENT SUPPORT CREDIT

June 29, 2004

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CURRENCY EQUIVALENTS

(Exchange Rate Effective June 2004)

Currency Unit = Bangladesh Taka (Tk.) 1 Tk = US$ 0.016722

US$ 1.00 = 59.8 Tk

FISCAL YEARJuly 1 June 30

ABBREVIATIONS AND ACRONYMSACC Anti-Corruption CommissionADB Asian Development BankBADC Bangladesh Agriculture Development CorporationBCIC Bangladesh Chemical Industries CorporationBSFIC Bangladesh Sugar & Food Industries CorporationCAS Country Assistance StrategyDFID Department for International Development, U.K.DSC Development Support CreditERC Energy Regulatory CommissionFDI Foreign Direct InvestmentEGBM Enterprise Growth and Bank Modernization ProjectEMTA Economic Management Technical Assistance ProjectGOB Government of BangladeshGDP Gross Domestic ProductIAS International Accounting StandardsIDA International Development AssociationIMF International Monetary FundMTEF Medium Term Expenditure FrameworkNCB Nationalized Commercial BankPRGF Poverty Reduction and Growth FacilityI-PRSP Interim Poverty Reduction Strategy PaperSAC Structural Adjustment CreditSDB Specialized Development BankSME Small and Medium EnterprisesSOE State-Owned EnterpriseTAPP Technical Assistance Project Pro FormaUSAID United States Agency for International Development

Vice President: Praful Patel (SARVP)Country Director Christine Wallich (SACBD)Sector Manager Sadiq Ahmed (SASPR)

Task Team Leader/Task Manager: Anthony Bottrill (SASPR) and Richard Carroll (SASPR-Consultant)

BANGLADESHFirst Development Support Credit

CONTENTS

Page No.1. Project Data 12. Principal Performance Ratings 13. Assessment of Development Objective and Design, and of Quality at Entry 24. Achievement of Objective and Outputs 55. Major Factors Affecting Implementation and Outcome 136. Sustainability 147. Bank and Borrower Performance 158. Lessons Learned 169. Partner Comments 1710. Additional Information 17Annex 1. Key Performance Indicators/Log Frame Matrix 18Annex 2. Project Costs and Financing 30Annex 3. Economic Costs and Benefits 31Annex 4. Bank Inputs 32Annex 5. Ratings for Achievement of Objectives/Outputs of Components 33Annex 6. Ratings of Bank and Borrower Performance 34Annex 7. List of Supporting Documents 35Annex 8. List of Persons Interviewed in Bangladesh 36Annex 9. Net Profit/(Losses) from SOEs 2000/01-2002/03 ($ million) 38Annex 10. Outline of I-PRSP 39Annex 11. Borrower/Implementing Agency Comments 40

Preface

The Development Support Credit (DSC) to the Government of the People’s Republic of Bangladesh (GOB) in the amount of SDR217.6 million (US$300 million equivalent) was approved on June 19, 2003 and was disbursed in a single tranche. The credit closed on December 31, 2003, which was the original closing date.

This report was prepared by Richard Carroll (SASPR Consultant) and is based on interviews with World Bank (headquarters and the country office), an ICR mission to Bangladesh during May 9-16, 2004 and materials from the project file. The ICR focuses on the core conditions of the DSC. It does not assess portions of the Government program outside the core program such as reforms in the health and education sectors. The ICR does, however, consider actions in the DSC-supported areas beyond project close, up to the date of this report.

Christine Wallich is the Country Director, Sadiq Ahmed is the Sector Director, and Kapil Kapoor is the Sector Manager for Bangladesh and was the task manager through October 2003. Anthony Bottrill (Task Manager for the credit after October 2003) had overall responsibility for monitoring the policy matrix for SAC3. From the Bangladesh office, Syed Nizamuddin (public sector), Khurshid Alam (SOE reform), Muhammad Iqbal (energy and power), Syed Mynuddin Hussain (Governance), Zaidi Sattar (Trade), and Salman Zaheer (utilities) provided input. From headquarters, Sadiq Ahmed, Kapil Kapoor, Alma Kanani (public expenditure management) and Penelope Brook (power sector) provided input to the ICR.

A list of Government and Bank staff who were interviewed in Bangladesh is provided in Annex 8. We would like to express our thanks for the excellent cooperation we received from the Government in assessing the DSC operation. We are also grateful for the support of the Bank office in Dhaka for arranging meetings and other assistance.

Project ID: P081845 Project Name: Development Support CreditTeam Leader: Anthony Richard Howe Bottrill TL Unit: SASPRICR Type: Core ICR Report Date: June 29, 2004

1. Project DataName: Development Support Credit L/C/TF Number: IDA-37930

Country/Department: BANGLADESH Region: South Asia Regional Office

Sector/subsector: Banking (25%); General energy sector (25%); General industry and trade sector (20%); Central government administration (20%); Law and justice (10%)

Theme: Public expenditure, financial management and procurement (P); Debt management and fiscal substainability (P); Regulation and competition policy (P); Infrastructure services for private sector development (S); Administrative and civil service reform (S)

KEY DATES Original Revised/ActualPCD: 02/25/2003 Effective: 06/23/2003 06/23/2003

Appraisal: 04/17/2003 MTR: 11/01/2004 11/01/2004Approval: 06/19/2003 Closing: 12/31/2003 12/31/2003

Borrower/Implementing Agency: GOVERNMENT OF BANGLADESHOther Partners:

STAFF Current At AppraisalVice President: Praful C. Patel Mieko NishimizuCountry Director: Christine I. Wallich Frederick Thomas TempleSector Director: Sadiq Ahmed Sadiq AhmedTeam Leader at ICR: Anthony Bottrill Kapil KapoorICR Primary Author: Richard J. Carrol

2. Principal Performance Ratings

(HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HL=Highly Likely, L=Likely, UN=Unlikely, HUN=Highly Unlikely, HU=Highly Unsatisfactory, H=High, SU=Substantial, M=Modest, N=Negligible)

Outcome: S

Sustainability: L

Institutional Development Impact: M

Bank Performance: S

Borrower Performance: S

QAG (if available) ICRQuality at Entry: S S

Project at Risk at Any Time: No

3. Assessment of Development Objective and Design, and of Quality at Entry

3.1 Original Objective:

Setting for the Development Support Credit (DSC). Bangladesh is a densely populated country of 135 million people. The structure of GDP is about half services and 25 percent each for agriculture and manufacturing. The macro-economy achieved a 5 percent growth rate in the 1990s, improving from the 4 percent level in the 1980s. This growth rate was still significantly below the 6-7 percent needed to reach Millenium Development Goals (MDG) for poverty reduction. To reach the higher growth path key reforms were needed.

The setting for the DSC was characterized by a slowdown of reforms in the mid-1990s, with deteriorating governance. State-owned enterprises were a continued fiscal drain and contingent liabilities increased. Foreign exchange reserves dropped with the unfavorable external environment and aftermath of September 11, 2001. These problems made more difficult the main challenge for the economy of accelerating growth to a level that would employ Bangladesh’s growing population and reduce poverty. The Government’s strategy to meet this challenge was expressed in the I-PRSP’s (A National Strategy for Economic Growth Poverty Reduction and Social Development) three pillars: Acceleration of Pro-Poor Growth, Promoting Good Governance, and Investing in Human Development. The I-PRSP was presented to the Boards of the IDA and the IMF in May 2003.

The goal of the first pillar is to raise the economy’s growth rate from about 5 percent per annum to 6-7 percent, in order to attain the MDG poverty reduction target set for 2015. The key building blocks of this strategy are a stable macroeconomic framework, with maintenance of low inflation and sustainable fiscal deficits and external debt, and a sound and well-functioning financial system that ensures that the poor have access to financial resources. The second pillar of the Government’s poverty reduction strategy aims at improving governance, which is a severe impediment to current poverty reduction efforts. The third pillar recognizes the strong poverty reducing effects of human capital development in Bangladesh, and emphasizes the Government’s strategy in the medium term, which is the development of basic capabilities and human resource development of the poor population.

To support the Government’s Growth and Poverty Reduction Strategy, the Board of Directors approved the Development Support Credit (DSC) of US$300 million equivalent (SDR217.6 million) on June 19, 2003. The DSC concentrated on the first two pillars of the Government reform program. It was the first economy-wide adjustment-type operation in 10 years.

Objective

The objectives of the DSC as stated in the Medium-Term Structural Reform Policy Matrix of the Program Document are listed below. These are the objectives that were matched with core conditionality. (Other objectives of the overall reform program not directly supported by the DSC included: (i) Develop a proactive system of public administration (non-core for DSC, core for DSC 2 triggers); (ii) Improve the availability and enhance the efficiency of telecommunication services; (iii) Improve the business environment and

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competitiveness; (iv) Improve resource mobilization and expenditure management; (v) Improve the quality of education services; and (vi) Ensure effective and equitable access to health services.)

1. Stabilize the macroeconomic environment (core, but with the IMF taking the lead).2. Improve the governance of the financial system.3. Enhance overall accountability and transparency and reduce corruption.4. Reduce the financial hemorrhage caused by state-owned enterprises.5. Improve the availability and enhance the efficiency of the energy sector.

It is clear from these objectives that the main aims of DSC were to improve fiscal sustainability and governance. The DSC objectives generally supported the first two pillars of the I-PRSP, and were generally consistent with the I-PRSP Medium-Term Policy Matrix and the Country Assistance Strategy Progress Report (CASPR-see section 3.3, June 30, 2003), all of which were responsive to economic and social priorities. Exceptions included the adjustment of oil and gas prices, though power prices were included as a reform in the I-PRSP matrix. The plan to adjust oil and gas prices was included in the Letter of Development Policy (LDP). These price adjustments proved highly problematic (see Sections 4.1 and 4.2).

3.2 Revised Objective:No revisions.

3.3 Original Components:The specific components of the Medium-Term Structural Policy Reform Matrix that the DSC supported were:

1. Macroeconomic Management (satisfactory implementation under the IMF PRGF)2. Financial Sector (strengthen regulation and oversight)3. State-Owned Enterprises Reform (reduce budget drain)4. Energy Sector (pricing framework and establishing an energy regulator, etc.)5. Broad-based Governance (improve procurement and enhance public financial accountability)

The DSC focused on a relatively narrow subset of the program laid out in the I-PRSP. Other Bank operations, plus support from the wider donor community dealt with the health and education portions of the I-PRSP agenda. In both sectors large programs were being developed. The components were appropriate to the fulfillment of the project development objectives. For example, the SOE component recognized that uneconomic power prices favored only the top third of the population and were leading to unreliable electric supply, which discouraged investment (see Section 3.5).

3.4 Revised Components:No revisions.

3.5 Quality at Entry:ICR – Satisfactory. The DSC design dealt with priority issues for growth and emphasized fiscal sustainability and governance. The measures focused on energy, banking sector and SOE

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reforms. The energy sector infrastructure was relatively poor in Bangladesh and was rated by the Global Competitiveness Report (from the World Economic Forum) as the most significant infrastructure-related obstacle to investment in Bangladesh. The I-PRSP noted that a well-functioning financial system with access to financial resources for the poor is essential to poverty reduction. A 2000 World Bank report estimated that poor governance costs 2 to 3 percentage points in growth every year. This margin exceeds the difference between the country’s current growth path and the one it needs to be on to achieve MDGs on time.

The DSC program document presented four main risks and associated mitigation measures. The main risks cited were: vested interests who would lose from improvements in governance and could undermine political support, weak institutional and human capacity that would slow down implementation, higher than expected reform costs to the budget if banking and SOE reforms were to proceed at a slower pace, and continued depressed external environment which could limit export and economic growth. These risks, the Program Document stated, were to be mitigated by the fact that the Minister of Finance and Planning was a reform champion with an established track record which included the implementation of reforms in the early 1990s. This reform champion also had the support of the Prime Minister, and a group of reform-minded leaders and bureaucrats who were working to build constituencies for reform. The Government had also formed a committee of five Secretaries, embarked on a 100-day program immediately after taking office to address the most urgent issues and conducted a full-scale I-PRSP process.

It is certainly important to have a reform champion, as has been seen in a number of countries. A reform champion can triumph over typical reform obstacles such as weak implementation capacity, which has characterized operations in Bangladesh in the past. Challenges from vested interests may also slow reforms, despite high level Government commitment. Also, in Bangladesh the pace of reform tends to slow relatively early in the election cycle as socio-political considerations come to the fore. (Current reform delays are attributed in large measure to elections that are two years away). The Bank is discovering these challenges to reform (e.g., delays in establishing the Anti-corruption commission and the Energy Regulatory Commission) as it helps the Government revise and achieve DSC 2 reform triggers (see Table 2). One notable area in the DSC was that of energy price adjustments. Given what has transpired since DSC effectiveness, it was clearly ambitious for the Government to carry out these adjustments. Still, the choice was between investing additional time in establishing a deeper commitment, which might never have materialized, on one hand, and taking advantage of the window of opportunity while a reform champion and favorable government are in place, on the other. The Bank chose the latter, which was the right choice.

The program document cited the dialog between the Government and labor leaders as risk mitigation for the retrenchment under SOE reform. This is an essential feature of any reforms that entail significant retrenchment. In retrospect, in the case of fallout of the jute mills closure (riots and political backlash from the opposition) and the general slowing of SOE reform, it is evident that retrenchment-related opposition was not fully mitigated. Though the first three large jute mills that were closed remained closed, three subsequent closed mills were reopened (Kulna). The ICR also agrees with the QAG review (below) that the “claw back” clause that protects against reform reversal was not a realistic form of risk mitigation.

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A strength of the DSC was that it was a single tranche operation. This took into account Bank experience in Bangladesh of weak implementation, in particular, that three multi-tranche adjustment operations were cancelled before completion in the 1990s (the Jute Sector Adjustment Credit, Public Resource Management Adjustment Credit and the Industrial Sector Credit 2). The single tranche approach meant that the reforms had to be implemented in advance of the financial assistance. The benefits from experience, intensive country dialog and the relevant design, in the end, contributed to the achievement of a meaningful set of measures.

QAG – Satisfactory. The QAG commended the preparation and justification of the DSC, stating that the Bank was properly taking advantage of the election of a reform-minded government. The QAG panel did express a number of concerns including the insufficient attention to weak implementation capacity, too close identification with a few key reformers, and lack of ownership of the reform program beyond these key people. Despite these concerns, all assessment areas were rated satisfactory.

4. Achievement of Objective and Outputs

4.1 Outcome/achievement of objective:This section reviews macroeconomic achievements and the outcomes of the DSC with respect to the core project development objectives. The evaluation carries from the beginning of the DSC dialog, about mid-2002, to the date of this ICR.

Core Objective 1: Stabilize the macroeconomic environment. (Satisfactory)

Macroeconomic performance has been essentially good and improved somewhat during and since the DSC effectiveness, as Table 1 shows. Growth ranged from 4.4 to 5.9 percent during 2000-03, with a growth rate of 5.3 percent in 2003. Inflation remained low, between 1.6 and 4.4 percent, with the higher inflation rate reached in 2003.

On the fiscal side, the picture is bright. Both the overall and primary cash deficits continued to shrink as a percentage of GDP, with further deficit reduction indicated for FY04. This is a large improvement over FY02 when the Government embarked on the DSC (and PRGF) supported reform agenda. Foreign direct investment remained weak at only 0.1 percent in 2002 and 0.2 percent in 2003, which is among the weakest in the world. Domestic private investment was better, improving from 15.6 percent in 2000 to 16.5 percent in 2003. Export value, international reserves and the current account balance also improved.

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TABLE 1: Macroeconomic Indicators 2000-2003

Indicators 2000 2001 2002 2003 Real GDP Growth (% change) 5.9 5.3 4.4 5.3 CPI (%, annual average) 3.4 1.6 2.8 4.4 Official Unemployment rate (%) 3.7 n/a n/a n/a Foreign Direct Investment (% of GDP) 0.4 0.4 0.1 0.2 Private Investment (% of GDP) 15.6 15.8 16.8 16.5 Government Primary Cash Balance (% of GDP) -4.2 -3.5 -2.9 -1.7 Government Overall Cash Balance (% of GDP) -5.1 -5.1 -4.7 -3.5 Exchange Rate – Taka/US$ (end of period) 51.0 57.0 57.9 58.5 Current Account Balance (% of GDP) -0.7 -2.2 0.6 0.4 Merchandise Exports (fob, US$ million) 5,701 6,419 5,929 6,492 Gross Official International Reserves (US$ billion) 1.6 1.3 1.6 2.5 Gross Official International Reserves (months of imports of goods & services) 1.9 1.7 1.8 2.9

Source: IMF, Development Policy Review

Objective 2: Improve the governance of the financial system. (Satisfactory)

Governance of the financial system has been significantly improved through legislative changes that strengthen the role of the central bank, both in the conduct of exchange rate and monetary policy and in the supervision of banks. Bangladesh went to a floating rate in May 2003 and decides on intervention currency and foreign reserve management. However, the latter is basically market-determined now. A major example of the central bank’s increased power is its purview over the NCBs and SDBs that it gained from the amendments to the Banking Companies Act, a core condition of the DSC. Privatization or divestment of NCBs (DSC 2 triggers) has been delayed by political opposition, but is essentially still on-track. NCB assets have decreased from two-thirds of total financial sector assets three or four years ago, to about 40 percent currently.

Objective 3: Enhance overall accountability and transparency and reduce corruption. (Satisfactory)

The DSC supported the key elements of improved governance. The Government established a plan for procurement reform, separated the accounting and audit functions, as well as made progress in separating the judiciary from the executive branch. These are major steps toward improved accountability and transparency, but require additional measures that are addressed in the triggers for DSC 2 (see section 4.2 and Table 2).

The publication of procurement regulations greatly reduced confusion over procurement procedures. There had been multiple sets of procurement guidelines in the Government. The separation of the judicial and executive/administrative branches of government was ordered by the Supreme Court in 1999. However, there have been repeated (19) delays in the Presidential issuance of the necessary rules for the separation. The Judicial Services Commission was formed and designated the lower judiciary as under the judicial rather than the civil service. The sticking point is the status of the local Magistrates who generally prefer to remain as part of the administrative civil service (see Section 4.2).

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Objective 4: Reduce the financial hemorrhage caused by state-owned enterprises (Satisfactory)

Through closure or privatization, SOE losses have declined for several years, 2000/01-02/03 (see Annex 9), $458.5 million to $177.8 million, which is in part attributable to the DSC policy dialog. In manufacturing, in particular, the reduction of SOE losses has been good, with a further reduction indicated for FY04. Because of the lack of energy price adjustments (see Objective 5), combined with the spike in energy prices, the overall SOE losses did increase in FY04 (preliminary data), along with the increase in losses of the Bangladesh Petroleum Company. This shortcoming, however, is assessed as part of Objective 5 below, which specifically captures energy price adjustments (or lack thereof), which is rated unsatisfactory. Given the good progress in reducing SOE losses in all other areas, this objective is most appropriately rated as satisfactory.

During the DSC, the Government demonstrated its commitment to divesting itself from the manufacturing sector. Most notable was the closure of three large, state-owned jute mills, including the largest (Adamjee, which was losing an estimated $15-20 million per year) with over 25,000 workers. Although severance costs were quite high ($70-80 million for Adamjee alone and approaching $200 million overall), long term savings will far outweigh the short-term costs. Since the closures, the value of annual production and exports of jute have nearly maintained levels of recent years, indicating that there had been a large excess capacity in the sector.

There was concern that the Privatization Commission has had limited effectiveness, in part due to the fact that it deals only with operating SOEs, while the line ministries, which have limited expertise in privatization, are handling the closed SOEs. In response, the Government is adopting guidelines to delineate the responsibilities of the Privatization Commission and line Ministries for the liquidation of the closed SOEs.

Objective 5: Improve the availability and enhance the efficiency of the energy sector. (Moderately unsatisfactory)

The reform of this sector is particularly important to fiscal sustainability because losses and theft in this sector are substantial. It is also important to reduce losses and theft in order to gain public compliance with paying cost recovery tariffs (where individual customers pay higher rates). While some steps were taken to achieving these objectives, implementation has fallen far short. The first power tariff adjustment was made in September 2003, but no further adjustment has been made.

The first step towards an Energy Regulatory Commission (ERC) has been taken. However, operationalizing it is far behind schedule. Setting up the ERC will also mean progress toward better regulation in an important sector of the economy.

Most petroleum price adjustments were not implemented and so the outcome of reduced public borrowing was not achieved. Petroleum prices are currently 20-35 percent below prices indicated by the DSC formula. There were some price adjustments, however. For example, the price of

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kerosene was increased by 17 percent, though that does not represent a full price adjustment.

4.2 Outputs by components:Table 2 provides a summary of outputs under DSC, which consists of prior actions for Board presentation. The table also includes the original indicative triggers from the Program Document as well as the revised triggers for a planned DSC 2 for FY05. These triggers continue to be revised to ensure relevance and feasibility of implementation.

Macroeconomic Management. This component was mainly the domain of the IMF. As section 4.1 shows, stabilization results were reasonably good through the end of 2003, with some concern of inflation inching upward, though it was a manageable 4.4 percent for the year. The IMF completed reviews of the PRGF in January and May of 2004, which confirmed that the program was on-track.

Financial Sector (strengthen regulation and oversight). The Government passed the required amendments to the Bank Order of 1972. This measure gave the Bangladesh Central Bank greater authority on exchange rate and monetary policy, as well as bank supervision. The amendments to the Bank Companies Act of 1991 placed Nationalized Commercial Banks (NCBs) and Specialized Development Banks (SDBs) under the purview of the central bank. The Government also took a number of actions to remedy the problem of NCBs, specifically their high level of non-performing loans, general inefficiency and technical insolvency. These measures are identified in Table 2. There has been delayed progress in the implementation of the triggers for DSC 2. The sale of the Rupali Bank, an NCB, has been delayed from July to December 2004. The Agrani Bank is planned to be under a private management contract supported by the Enterprise Growth and Bank Modernization Project—EG&BM, under preparation). The Janata Bank is planned to be divested by the end of 2006. Securing management support for the Sonali and Janata Banks has been delayed, but actions on moving forward with the Resolution plans for all NCBs have been agreed. The Government does not currently plan to divest in part or full the Sonali Bank as originally agreed. The new positions are the result of stronger than envisioned political opposition. The positions will not threaten the program if measures to contain NPLs and ring-fence the Sonali Bank are taken.

State-Owned Enterprises Reform (reduce budget drain). The Government has been fairly successful in continuing the implementation of the hard budget constraint and Annex 9 shows overall SOE losses (budget drain) in steady decline during FY2000/01-2002/03. GOB also closed 28 of 130 loss-making SOEs in 2002/03, exceeding the 15 agreed to under the DSC. The Government did approve a new Privatization Policy, but did not approve the necessary draft regulations to implement the Privatization Act. The GOB plans to relinquish most of its ownership in economic activities, but for political reasons, will remain involved in fertilizer supply and sugar production. If the Government continues its progress in divestiture in other activities, the Bank is flexible on the subject of fertilizer and sugar. The largest closure was the Adamjee Jute mill with 25,000 workers retrenched.

The Government decided that the Privatization Commission would handle only the SOEs with ongoing operations. This decision undermines the authority of the Privatization Commission because most enterprises are closed prior to privatization. The line ministries are supposed to

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deal with the closed SOEs, however, these line ministries are ill-equipped to handle privatization. For the DSC 2 triggers, the GOB is behind in the target to close 10 enterprises for 2003/04 and retire at least 25,000 workers. Other triggers that are behind schedule include the downsizing of a number of state industry groups such as Bangladesh Agriculture Development Corporation (BADC), Bangladesh Chemical Industries Corporation (BCIC), Bangladesh Sugar & Food Industries Corporation (BSFIC), and the significant reduction of budget transfers and borrowing of all SOEs. However, approximately 15,500 workers are being retrenched from these companies during FY04. In addition, borrowing for loss-making manufacturing SOEs are limited only to their normal commercial operations and exclude any rehabilitation or expansion programs.

Energy Sector (pricing framework and establishing an energy regulator, etc.). The Bank had been pushing for many years for an energy sector regulatory framework. Under DSC, the Bank supported Government attempts at ambitious and fundamental reforms. The time did appear right for such an attempt, especially with a reform minded government in power. Some major reforms were achieved. A new petroleum, gas and power pricing framework was adopted that would increase efficiency and viability of energy sector enterprises and improve service to consumers. The first tariff adjustments were agreed and an Energy Regulatory Commission (ERC) Act to establish an independent energy regulator was passed. In addition, an energy sector reform plan was adopted. The oil and gas tariff adjustments were the most difficult of the energy reforms, and it was agreed that actual price adjustments would be deferred until September 2003. However, as mentioned in Section 4.1, the oil and gas adjustments were not made as agreed in September or in March 2004. The power adjustment for September 2003 was made, but the one scheduled for March was not (see section 4.1). A substantial, but partial, adjustment was made to the price of kerosene, resulting in a 17 percent increase.

Because of the failure of the Government to meet its commitment on oil and gas price adjustments, DSC energy price adjustment triggers had to be repeated as triggers for DSC 2. The Government will need to publicize the tariff formula and estimate budget costs of non-adjustment of energy prices. DSC 2 triggers also include hiring consultants by June 2004 to prepare Gas Strategy and Master Plan, prepare privatization of Padma Oil and appoint chairman and board members to the ERC in a transparent process.

Broad-based Governance. The Government fully implemented the core conditions and is making progress as well in the broader governance program. In procurement, the Cabinet approved the Technical Assistance Project Pro Forma (TAPP-a template in Bangladesh for preparing project proposals), which charts procurement reform, and The Public Procurement Regulations 2003 was drafted which greatly clarifies procurement rules. The Cabinet also approved legislation establishing an independent Anti-corruption Commission. The Government also continued the process of separating audit and accounting functions, which is now complete. The Government has continued progress in implementing the Supreme Court directive on separation of the judiciary and executive branches of government. The Government promulgated rules in January 2004 establishing a Judicial Service Commission (JSC) and has appointed members of the commission. The Government still needs to establish a Judicial Pay Commission. A key issue to be resolved is whether magistrates should continue in the civil or judicial service. The Government and the Bank must proceed with caution, given the negative experience in

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Pakistan when magistrates were stripped of their judicial role. Police corruption escalated and the citizenry retaliated with violence. The Bank Judicial reform project is following up on this matter as well.

The governance measures require follow up, which is specified under the DSC 2 triggers, to realize the full benefits. This follow up includes the appointment of the ACC chairman and members and sharing the draft procurement law with development partners.

TABLE 2: Overview of DSC Components and Major Conditions

Status of Pre-Board Conditions

Indicative Triggers for DSC 2 from Program Document

Latest Triggers for DSC 2

Macroeconomic Framework-Satisfactory

Satisfactory implementation of the agreed macroeconomic framework under the PRGF (Ongoing).

Satisfactory implementation of the agreed macroeconomic framework under the PRGF.

Satisfactory implementation of the agreed macroeconomic framework under the PRGF

Financial Sector-Satisfactory

Pass amendments to Bangladesh Bank Order, 1972, granting operational autonomy to Bangladesh Bank on exchange rate policy, monetary policy, bank supervision and its personnel affairs (Done)

Pass amendments to Banking Companies Act, 1991, removing the provisions that kept NCBs and SDBs outside the purview of Bangladesh Bank (Done)

Actions to address the NCB problem, including:• Select auditors to audit the four NCBs (Done).• Prepare a dated action plan for contracting new professional management for one NCB (Done)• Further progress in rationalizing the branch structure of NCBs by eliminating duplicate branches (Ongoing)• Announce its intention to privatize Rupali Bank and prepare a dated action plan (Done)

Privatize Rupali Bank (delayed to June 2005)

Secure Management support for Janata and Sonali banks

Issue prudential regulations on capital adequacy, interest income recognition, loan classification and provisioning, exposure limits, consistent with international practice.

Complete audit of NCBs. Award contract to Financial Advisor for sale of Rupali Bank.

Award management contract for Agrani and advisory contract for Sonali Bank. Retender advisory contract for Janata Bank.

Announce resolution strategy for all NCBs. (Done)

Cabinet approval of draft legislation amending prudential regulations on capital adequacy, interest income recognition, loan classification and provisioning, exposure limits, consistent with international standards.

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Status of Pre-Board Conditions

Indicative Triggers for DSC 2 from Program Document

Latest Triggers for DSC 2

SOE Reform-Satisfactory

Strict adherence to the hard-budget constraint agreed in the macro-framework (ongoing)

Cabinet Approval of new Privatization Policy (Done)But did not approve draft regulations to implement the Privatization Act and directed that closed SOEs would be handled by the line ministries, not the Privatization Commission.

Closure of at least 15 enterprises (Done)

Transfer to the private sector all those SOEs whose privatization has been processed and complete next phase of privatization or closures of SOEs engaged in manufacturing activity.

Complete preparatory activity to privatize Oil Marketing Companies, and restructure and downsize BADC, BCIC, BSFIC.

Implement International Accounting Standards in all SOEs.

Transfer 13 SOEs to buyers for which LOIs have been issued. Issue tender notices for sale of 5 more SOEs. (Done)

Downsize BADC, BCIC, BSFIC and BWDB. [RD to advise on fertilizer, seed and sugar subsidies.]

Reduce SOE financial losses

Energy Sector-Moderately Unsatisfactory

Adopt new (interim) petroleum, gas and power pricing framework, to ensure efficiency and financial viability of sector enterprises, while also protecting consumers from sector inefficiencies and ensuring that the poor can afford at least a basic level of energy services (Done)

Agree first tariff adjustments consistent with the new energy pricing framework (Done)

Pass an Energy Regulatory Commission Act establishing an independent Energy Regulatory Commission with authority over the economic regulation of the power and gas sectors, including the authority to set regulated tariffs (Done)

Show continued improvement in electricity billings (reduction in system loses) and collections from public and private consumers, resulting from an aggressive collection and disconnection drive (Ongoing)

Adopt an Energy Sector reform plan covering the next 3 years (Done)

Complete the restructuring of the debts and arrears of the power sector and adopt a financial action plan to prevent the growth of new arrears; begin publishing key performance indicators of sector enterprises.

Complete the corporatization of at least two distribution companies (excluding DESCO).

Complete the establishment of the Energy Regulatory Commission and issuance of priority regulations

Completion of restructuring of petroleum and natural gas sectors, including inter alia unbundling, consolidation of all gas transmission system in GTCL, financial restructuring, and all other related steps.

Complete pre-privatization work for divestment of one OMC and ERL, and gas distribution companies.

Reduce Government payables to energy utilities to not more than 3 months of bills. Establish a mechanism to prevent new Government arrears. Agree action plan to reduce private arrears to energy utilities. Publish financial results for all major energy utilities.

Corporatize at least 2 urban power distribution (excl. DESCO). (Done).

Appoint chairman and two members of Energy Regulatory Commission. Gazette date for coming into force of the ERC Act. Announce interim arrangements for Government to continue to set tariffs until ERC is able to set them.

Implement agreed pricing policies for power, gas and petroleum. Publish cost estimates and price adjustments quarterly in accordance with policies. [Letter required from MEMR and commitment in LDP.]

Seek Expressions of Interest from consultants to help prepare gas strategy and master plan. (Done)

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Status of Pre-Board Conditions

Indicative Triggers for DSC 2 from Program Document

Latest Triggers for DSC 2

Broad-based Governance – Satisfactory

Cabinet approval of TAPP laying out scope and sequencing of procurement reform and commence implementation (Done)

Cabinet approval of legislation establishing an independent Anti-Corruption Commission (Done)

Continue the process of separating audit and accounts (Ongoing)

Continued progress in implementing the Supreme Court directive on separation of judiciary and executive (Ongoing)

Appoint a Board and a chief executive for the independent anti-corruption commission and make the commission operational.

Publish a time-bound national anti-corruption action plan, endorsed by cabinet.

Identify and initiate actions to increase the independence of the Auditor General.

Adopt new standardized bidding documents and revised procurement rules and ensure compliance.

Establish public accounts committee.

Initiate preparation of Freedom of Information Act.

Gazette a date no later than June 30, 2004, for coming into force of the Anti-Corruption Act. Set up Selection Committee. Allocate budget for Commission for FY05.

Cabinet endorsement of broad anti-corruption strategy to include, among other things, restricting NCBs' lending, loan recoveries from defaulters, downsizing SOEs, liberalizing trade, modernizing tax administration especially Customs, improving public expenditure management and accounting, strengthening the role of the Controller & Auditor General, tracking expenditure leakages, tightening public procurement, establishing the independent Anti-Corruption Commission and improving oversight of major sectoral spending programs.

Prepare strategic plan for Public Accounts Committee.

Extend merit-based promotions to Deputy Secretaries and above. Agree to formation of "clusters" of ministries for Senior Civil Service Pool. (Done)

Create Career Planning and Training Wing in the Establishment Ministry. (Done)

Continue outsourcing of public services [Data?]

Issue and mandate public procurement regulations. (Done)

Appoint members of Judicial Service Commission. (Done)

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4.3 Net Present Value/Economic rate of return:Not applicable.

4.4 Financial rate of return:Not applicable

4.5 Institutional development impact:Modest. The DSC conditions emphasized institutional measures, particularly in the area of governance. Basic governance-improving measures were implemented (auditing, accounting, procurement, separation of executive and judiciary), which is significant institutional progress. The second stage of reform is now needed and there have been delays. Realistically, some of the measures furthered by the DSC are long term efforts that a DSC cannot be expected to see through fully. It will take additional similar operations for new institutions to be fully functioning. In addition, Bangladesh does not have a strong track record of reform, so long-term structural measures may take even longer than in most countries. This track record also dictates caution in assessing the IDI.

An example is the establishment of the ERC. The Government agrees with the need for such an institution and has passed the needed legislation, but it has been very slow in appointing a board, much less hiring staff to run the ERC. Adjustments to energy prices were supposed to have been automatic at this stage, but were deferred, then not implemented. The institutional mechanism is there and there needs to be at least some progress in calculating the price adjustments and being transparent about the budgetary cost if the adjustments are not made.

Financial and central banking reforms have been significant and, eventually, substantial IDI is expected. For now, the Government needs to move forward steadily to divest the NCBs. SOE reform has also slowed down, but will yield continued fiscal savings if, for example, the Privatization Commission becomes more effective and is allowed to handle closed SOEs. For now its IDI is modest.

5. Major Factors Affecting Implementation and Outcome

5.1 Factors outside the control of government or implementing agency:The increase in oil prices made it difficult to follow through on the agreed power and oil and gas price adjustments under the new pricing framework. The power sector tariff was adjusted in June prior to effectiveness, but the planned September 2003 and March 2004 adjustments have not taken place. None of the oil and gas price adjustments have taken place, though the kerosene price has been adjusted upward by 17 percent. The spike in the international fuel prices would mean a significantly higher income impact on the population of a price adjustment.

5.2 Factors generally subject to government control:The Government has had to cope with a significant level of political opposition to some of the reforms. It has chosen to slow down implementation, as in the case of bank privatization, and convert full SOE closure to partial closure. The election cycle also appears to have had an effect on the pace of reform. The anticipation of the early 2006 elections seem to have already

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increased the level of political caution and slowed down implementation of the DSC 2 triggers.

5.3 Factors generally subject to implementing agency control:No significant factors.

5.4 Costs and financing:The total original credit amount was SDR217.6 million (US$300 million equivalent), which was fully was disbursed. The credit was made on standard IDA terms with a term of 40 years and a 10-year grace period. The borrower was the People’s Republic of Bangladesh.

6. Sustainability

6.1 Rationale for sustainability rating:The sustainability of the DSC-supported reform program is rated likely for the overall program for the immediate and medium terms. There are, however, significant concerns and some reform measures appear more sustainable than others. As stated, the flow of the reform progress appears to hinge on the election cycle. Elections are slated for 2006 and the cycle begins about 18 months before the actual election, so reforms will continue, but most likely at a gradually slower pace until the election. The rising level of political opposition to some of the reforms (e.g., the closure of the three jute mills in Kulna) has led to delays in financial sector and SOE reforms as noted above.

There is some concern about the sustainability of further SOE closures because of the Government option for partial vs. full closures, which may lead to a revolving door of retrenchment, then new hires. The three jute mills that were closed in Kulna were reopened because of labor unrest and political backlash. The Government is aware of the concern and has assured the Bank that partial closures will lead to full closures of loss-making SOEs and that already retrenched workers will never be rehired. There is a freeze on hiring workers in SOEs and new recruitments require clearances from the MOF and the Ministry of Establishment.

The Bank has anticipated potential social problems that come with large retrenchments. If the released workers squander their severance pay, they will be vulnerable. To reduce this risk, there is a micro-enterprise and counseling component ($10 million) financed by DFID under the Bank financed EGBM project. The EGBM is a hybrid project that also funds further severance payments.

Many of the indicative triggers for a follow-up DSC 2 have been met. The financial sector and governance sections of the reform program appear to be progressing steadily. However, in other areas, particularly in the energy sector and, to a lesser extent, SOEs, progress needs to accelerate. Given that the energy price adjustments were not made, the Bank would like to see, at a minimum, a calculation of the tariff adjustment under the agreed formula and a transparent estimate of the fiscal impact of not carrying through the price adjustments.

6.2 Transition arrangement to regular operations:The Country Assistance Strategy envisioned several successive operations similar to the DSC that would broaden and deepen the reform program. Currently, the DSC 2 is the planned next step with detailed, but flexible triggers. The original plan was to meet DSC 2 triggers in time for an

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FY04 Board date. However, the Government did not achieve sufficient progress by the end of the fiscal year and needed to meet a number of the triggers. With the Bank and the Borrower’s accumulated knowledge from the DSC, the DSC 2 triggers have been revised somewhat to reflect evolving conditions (see Table 2).

The technical assistance project for the energy sector is expected to help sustain energy reforms and improve efficiency and effectiveness through capacity building in the sector. One concern is that the weak civil service incentive package will make it difficult to attract the high caliber personnel needed to staff the ERC. The EGBM project is expected to support financial sector reform by preparing NCBs for privatization. The Economic Management Technical Assistance project (EMTA) will help deepen implementation capacity in financial accounting and auditing. A large unallocated portion of the EMTA may be used for strengthening new institutions initiated under the DSC, such as the ACC and the ERC.

7. Bank and Borrower Performance

Bank7.1 Lending:Satisfactory. In the face of risks of lack of familiarity with adjustment operations (DSC was the first economy-wide operation) and political opposition, the Bank seized the opportunity for progress in some key structural areas. The design of the DSC was a fairly focused core program that emphasized governance and fiscal responsibility. The quality at entry was assessed as satisfactory by both the QAG and the ICR. One lending issue that has not been fully justified and was raised by the QAG was the rather abrupt increase in the credit amount from US$200 million to US$300 million, which was never fully explained. The Bank took measures to ensure Borrower buy-in of DSC 2 triggers, including detailed discussions and negotiations of individual triggers at top levels, including the Prime Minister and at the MOF and the Region, and public dissemination of the revised triggers.

7.2 Supervision:Satisfactory. The Bank has been active in all reform areas. It has worked with the Government to identify needed actions and has been pushing for progress consistently throughout the DSC and beyond. With active participation of the country director the triggers for DSC 2 have been reviewed and modified to increase borrower buy-in and enhance implementation. The DSC 2 has been appropriately delayed until FY05 pending satisfactory progress with respect to the revised triggers. The Bank is showing reasonable flexibility on the follow-up program in the energy and financial sector (revised divestiture dates) that will ensure continuation of Bank support for the reform program. The Bank is also buttressing its support for the broader I-PRSP agenda with its education and health sector initiatives. Monitoring indicators were established and tracked with Bank assistance and included regular updating of a detailed supervision matrix. However, the Bank could increase efforts to document its supervision in the Project Status Reports (PSRs) as only one was completed during the course of this operation. This PSR was not detailed, and did not cover outstanding issues such as energy price adjustments.

7.3 Overall Bank performance:Satisfactory. On balance, the overall Bank performance is rated satisfactory. Also, the Bank prepared and supervised the project rather inexpensively, $174,500 of total costs for a $300

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million loan (Annex 4).

Borrower7.4 Preparation:Satisfactory. The reform champion at the Ministry of Finance and Planning spearheaded a program based on the Government I-PRSP and supported by the DSC. The Borrower, like the Bank, perceived an opportunity to achieve significant structural reforms that had been discussed for a number of years. The Borrower agreed to an ambitious program. As Borrower familiarity with the nature of an adjustment operation increased, it could make more strategic decisions to increase feasibility of implementation. For example, on NCB divestiture, the Government decided to begin with the smaller of the four NCBs, Rupali Bank, and end with the largest and most difficult, Sonali. In this way, the Government increased the chance of a successful corporatization and divestiture that would pave the way for future NCB divestitures.

7.5 Government implementation performance:Satisfactory. The GOB carried out the DSC conditions as agreed with no waivers. The program was ambitious program and included the closure of three large jute mills that required the retrenchment of approximately 30,000 workers, which was previously politically unfeasible to implement. The one major shortcoming was the Government’s failure to implement the energy price adjustments that the Bank agreed to defer until after credit disbursement.

7.6 Implementing Agency:Satisfactory. Implementing agencies had varying degrees of performance. The Privatization Commission did not live up to expectations partly due to the fact that it has not dealt with closed SOEs. The Central Bank has improved its performance with its additional authority in bank supervision and monetary and exchange rate policy, with macro-stabilization largely successful. IAs also successfully divested 25 percent of total NCB assets in a two year period. Overall, IA performance has been satisfactory.

7.7 Overall Borrower performance:Satisfactory. Though implementation of the program slowed after effectiveness and loan disbursement, the DSC conditions were successfully implemented (except for the deferred energy price adjustments) and overall Borrower performance is satisfactory.

8. Lessons Learned

A DSC-type operation is not the best vehicle to achieve long-term structural change, but it can be a good catalyst to initiate it. An example is the energy reforms. These had been discussed with the Government for a long time, but through the DSC, the pricing framework and the ERC Act were actually passed. Clearly issues remain that other support and dialog will have to help resolve.

Likewise, a DSC can serve a the final push to implement other reforms that have been on the agenda for a long time. An example is the closure of the Jute mills that were costing the government over $100 million in losses annually. The Bank had an open and long-standing offer to the Government that if it did decide to close down the high loss jute mills, then the Bank would provide substantial assistance for retrenchment. The Government was encouraged to move

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forward and close the jute mills because of the availability of the $300 million of budget support from DSC.

Triggers need to be flexible to incorporate evolving priorities and additional ESW/AAA. The triggers for the follow-on DSC 2 were relevant to deepening the program, but later needed significant revisions to reflect evolving conditions.

Greater mutual reinforcement of the Bank and Fund programs (overlap between policy matrix and Letter of Intent) might have averted the reform slowdown to some extent. There was little overlap between the programs of the two institutions. The Bank might have had a stronger hand in some areas, such as energy pricing, if the IMF had had cross conditionality.

The Bank has to be careful in its conditionality not to put Governments in an inferior position in dealing with contractors. In the case of time bound conditions such as the awarding of the financial advisory contract for NCBs, the contractor may take opportunities to increase fees.

The Bank needs to keep in mind a realistic timeframe for restructuring of the financial sector. The current Bank timeframe for Bangladesh for public sector bank restructuring is about 4 years, whereas in Pakistan, as a comparison, it took almost 10 years for a similar financial restructuring to take place. A major NCB privatization/divestiture each calendar year is ambitious.

9. Partner Comments

(a) Borrower/implementing agency:See Additional Annex 11.

(b) Cofinanciers:Not applicable.

(c) Other partners (NGOs/private sector):Not applicable.

10. Additional Information

Not applicable.

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Annex 1. Key Performance Indicators/Log Frame Matrix

DSC I core conditions apply to June 2003, DSC II triggers apply to June 2004, and the planned DSC III (or other operations) apply to June 2005. In all cases, core conditions and triggers are in bold.

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Annex 2. Project Costs and Financing

Project Cost by Component (in US$ million equivalent)Appraisal Estimate

Actual/Latest Estimate /a

Percentage of Appraisal

Project Cost By Component US$ million US$ millionBOP/Budget Support 300.0 300.0 100%

Total Costs 300.0 300.0 100%

Total Financing Required 300.0 300.0 100%

Project Costs by Procurement Arrangements (Appraisal Estimate) (US$ million equivalent)

Expenditure Category ICB Procurement

NCB Method

Other /aN.B.F. Total Cost

1. BOP/Budget Support 300.0 300.0 Total Costs 300.0 300.0 Total Financed by IDA 300.0 300.0/a Or SDR217.6 million.

Project Costs by Procurement Arrangements (Actual/Latest Estimate) (US$ million equivalent)Expenditure Category ICB Procurement

NCB Method

Other /bN.B.F. Total Cost

1. BOP/Budget Support 300.0 300.0Total Costs 300.0 300.0Total Financed by IDA 300.0 300.0/b Or SDR 217.6 million.

Project Financing by Component (in US$ million equivalent)Component Appraisal Estimate Actual Percentage of Appraisal /a

IDA Govt. CoF.IDAGovt.CoF.IDAGovtCoF.

BOP/Budget Support 300.0 300.0100.0

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Annex 3. Economic Costs and Benefits

Not applicable.

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Annex 4. Bank Inputs

(a) Missions:Stage of Project Cycle Performance Rating No. of Persons and Specialty

(e.g. 2 Economists, 1 FMS, etc.)Month/Year Count Specialty

ImplementationProgress

DevelopmentObjective

Identification/PreparationDecember 2002 5 TTL, E, En, F, SOE S SFebruary 2003 4 TTL, En, F, E S S

Appraisal/NegotiationMay 2003 4 TTL, E, En, F S S

SupervisionJuly 2003 4 TTL, E, En, F S SSeptember 2003 4 TTL, E, En, F S S

ICRMay 2004 1 E S S

TTL-Task Team Leader, E-Economist, En-Energy specialist, P-Privatization specialist, SOE-SOE specialist, F-Financial specialistIn addition, there was ongoing daily supervision of DSC through the Bangladesh field office that is not reflected in this table.

(b) Staff:

Stage of Project Cycle Actual/Latest EstimateNo. Staff weeks US$ ('000)

Identification/Preparation 27.76 122.2Appraisal/Negotiation (included above) (included above)Supervision 10.12 32.4ICR 5.4 20.2Total 43.28 *174.8

* Includes labor, trave and other costs.

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Annex 5. Ratings for Achievement of Objectives/Outputs of Components(H=High, SU=Substantial, M=Modest, N=Negligible, NA=Not Applicable)

RatingMacro policies H SU M N NASector Policies H SU M N NAPhysical H SU M N NAFinancial H SU M N NAInstitutional Development H SU M N NAEnvironmental H SU M N NA

SocialPoverty Reduction H SU M N NAGender H SU M N NAOther (Please specify) H SU M N NA

Private sector development H SU M N NAPublic sector management H SU M N NAOther (Please specify) H SU M N NA

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Annex 6. Ratings of Bank and Borrower Performance

(HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HU=Highly Unsatisfactory)

6.1 Bank performance Rating

Lending HS S U HUSupervision HS S U HUOverall HS S U HU

6.2 Borrower performance Rating

Preparation HS S U HUGovernment implementation performance HS S U HUImplementation agency performance HS S U HUOverall HS S U HU

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Annex 7. List of Supporting Documents

Country Assistance Strategy Progress Report for The People’s Republic of Bangladesh, June 30, 2003.

Interim Poverty Reduction Strategy Paper and Joint IDA-IMF Staff Assessment of the IPRSP, May 29, 2003.

Program Document For a Proposed Development Support Credit in the Amount of SDR 217.6 million (US$300 million equivalent) to The People’s Republic of Bangladesh, May 22, 2003.

Development Credit Agreement for DSC, June 20, 2003.

IMF Staff Reports

Project Files, Project Status Report, BTOs, A-Ms, etc.

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Additional Annex 8. List of Persons Interviewed in Bangladesh

Ministry of Finance

Mr. Zakir Ahmed KhanSecretaryFinance Division

Dr. Chowdhury Saleh AhmedDirector GeneralMonitoring Cell, Finance Division

Mr. Mohammad TarequeJoint SecretaryBudget

A.Z.M. Shafiqul AlamDeputy SecretaryEconomic Relations Division

Md. Aminul Islam BhuiyanAdditional SecretaryEconomic Relations Division

Dr. Quazi Mesbahuddin Ahmed Member, GEDPlanning Commission

Cabinet

Dr. Saadat HusainCabinet SecretaryCabinet Division

Bangladesh Bank

Dr. Fakhruddin AhmedGovernor

Ministry of Power, Energy and Mineral Resources

A.S.M. Humayun KabirP.S. to SecretaryPower Division

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EU

Marianne WenningHead of UnitMultisector Thematic Support

IMF

Marijn VerhoevenResident Representative

World Bank

Md. Iqbal, Energy SpecialistRaihan Elahi, Energy SectorSalman Zaheer, Lead Utilities SpecialistG. M. Khurshid Alam, Sr. Private Sector Development SpecialistSyed Mynuddin Hussain, Legal ConsultantAnthony Richard Howe Bottrill, TTL MacroSyed Nizamuddin, Senior Economist PREM (SOEs, pricing, other)Zaidi Sattar, Senior Economist PREM (Trade)

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Additional Annex 9. Net Profit/(Losses) from SOEs 2000/01-2002/03 ($ million)

CORPORATION 2000-01 2001-02 2002-03

MANUFACTURING: Bangladesh Textile Mills Corporation (BTMC) -7.89 -8.01 -6.51Bangladesh Steel and Engineering Corporation (BSEC) 0.03 2.18 2.32Bangladesh Sugar and Food Industries Corporation (BSFIC) -8.08 -10.96 -13.92Bangladesh Chemical Industries Corporation (BCIC) -26.73 -19.65 -14.84Bangladesh Forest Industries Development Corporation (BFIDC) -2.62 -2.58 0.69Bangladesh Jute Mills Corporation (BJMC) -65.58 -50.39 -25.41 Sub-total -110.87 -89.4 -57.67 OTHERS: Utilities: Bangladesh Oil, Gas and Mineral Corporation (BOGMC) 33.79 34.21 43.55Bangladesh Power Development Board (BPDB) -79.85 -74.78 -2.42Dhaka Electric Supply Authority (DESA) -63.69 -79.08 -49.81Chittagong Water and Sewerage Authority (CWASA) -0.97 -0.55 -0.35Dhaka Water and Sewerage Authority (DWASA) 0.3 2.92 6.47Commercial Bangladesh Petroleum Corporation (BPC) -266.2 -111.31 -149.26Bangladesh Jute Corporation (BJC) 0.07 0.04 0.02Trading Corporation of Bangladesh (TCB) 1.37 11.52 -5.18Transport and Communication 4.6 23.41 23.23Agriculture and Fisheries -4.34 -5.05 -5.21Construction 4.73 2.87 1.19Service and other sectors 22.52 20.42 17.64 Sub-total -347.66 -175.34 -120.11

Grand total -458.52 -264.74 -177.78

Source: Monitoring Cell, Finance Division

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Additional Annex 10. Outline of I-PRSP

Accelerating pro-poor growth

• A stable macroeconomic environment• Use the private sector as the engine of growth• Establish a sound and well-functioning financial system and ensure the poor’s access to financial services• Take advantage of opportunities of globalization• Develop rural areas and accelerate rural non-farm growth• Create conditions for expanding manufacturing• Improve infrastructure services

Promoting good governance

• Create a competitive environment across all segments of society• Establish and enforce clear rules and regulations for public sector administration• Promote the participation of civil society and vulnerable groups

Investing in human development

• Targeted public expenditures in health, nutrition and education• Improved incentives for public service providers• Expand access of the poor to public health services• Introduce a national nutrition program to address malnutrition of children under two as

well as pregnant and lactating mothers (provision of food supplements and health and nutrition counseling)

• Improve quality and access of education for the poor

Promoting women’s advancement

• Promote women’s literacy, property rights, employment and credit access• Combat high maternal mortality and violence against women• Promote formal equality, affirmative action and a women-friendly institutional environment overall.

Ensuring Social Protection for risk coping and insurance

• Improve social safety nets• Address the vulnerabilities of the “new poor”• Develop social solidarity• Risk insurance (mitigation)

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Additional Annex 11. Borrower/Implementing Agency Comments

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