DccumcM of

The World Bank

FOR OMCIAL USE ONLY

Rqput No. P-4102-SU

REPORT AND RECOMMENDATION

OF THE

PRESIDENT OF THE

INTERNATIONAL DEVELOPMENT ASSOCIATION

TO THE

EXECUTIVE DIRECTORS

ON A

PROPOSED DEVELOPMENT CREDIT

IN THE AMOUNT OF SDR 20.2 MILLION

TO

THE DEMOCRATIC REPUBLIC OF THE SUDAN

FOR THE

DROUGHT RECOVERY PROGRAM

June 3, 1985

Thi dcumnat bas a ra&ludu db~ijim and m*Y be _md by redieuts Ouy In the performan ofte *okj 4ug Us cegb mm y not oderwie be dicod wltoat Werd Bank mthoh.

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CURRENCY EQUIVALENTS

US$ 1.00 - LSd 2.50 (official rate)LSd 1.00 US$ 0.40 (official rate)LSd 1.00 100 piasters

WEIGHTS AND MEASURES

1 meter (m) 3.28 feet (ft)1 kilometer (km) - 0.62 miles (m)1 sq. kilometer (km2) - 0.3886 sq mi (mi 2 )1 metric ton (mt) m 2,205 pounds (lb)1 liter (1) m 0.264 gallons (gal)1 feddan (fd) 1.04 acres1 kantar (seed cotton) 143 kg1 kilowatt (kw) 5 1.36 horsepower (hp)

GLOSSARY AND ABBREVIATIONS

ABS - Agricultural Bank of SudanARP - Agricultural Rehabilitation ProgramARC - Agricultural Research CorporationCCCA - Committee for Coordinating Commodity AidCPC - Cotton Public CorporationDRP - Drought Recovery ProgramEAP - Export Action ProgramEFF - Extended Fund FacilityELS - Long Staple CottonGOS - Gcvernment of SudanJMC - Joint Monitoring CommitteeNEFC - Mechanized Farming CorporationMOA - Ministry of AgricultureMOFEP - Ministry of Finance and Economic PlanningNWC - National Water CorporationPPC - Program Procurement CommitteePPPED - Prospects, Programmes and Policies for

Economic DevelopmentPPF - Project Preparation FacilitySGB - Sudan Gezira BoardSPPF - Special Project Preparation FacilityTYPIP - Three Year Public Investment Program

IDA FISCAL YEAR

July 1 - June 30

FOR OFFICIAL USE ONLY

SUDAN

DROUT RECOVERY PROGRAM

Credit and Project Summary

Borrower: Democratic Republic of the Sudan

Amount: SDR 20.2 million (US$20 million equivalent)

* Beneficiaries: Agricultural Bank of Sudan, Sudan Gezira Board, RahadCorporation and National Water Corporation

Relending The Borrower would re-lend US$9.0 million equivalent to theTerms: Agricultural Bank of Sudan for 10 years repayment including

3 years grace, with a service charge equivalent to 9.6percent annually with the foreign exchange risk borne by theGovernment. The balance would be made available to theSudan Gezira Board and the Rahad Corporation as a cash saleand to the National Water Corporation as a grant.

Program The credit will provide emergency assistance to help restoreDescription: food production losses caused by several years of drought.

Specifically, it will provide financing:

(i) through the Agricultural Bank of Sudan for farmmachinery and spare parts, fertilizer and jute sacks tomechanized farmers in the rainfed areas and to traditionalprivate farmers with irrigated farms;

(ii) through the Sudan Gezira Board and Rahad Corporationfor fertilizer to tenant farmers in the Gezira and Rahadirrigated schemes; and

(iii) to the National Water Corporation for equipment toassist in the drilling and rehabilitation of wells andboreholes and the construction of hafirs to increase potablewater supplies in the Eastern Region of Sudan.

Program The program would help about 100,000 farmers increaseBenefits sorghum and wheat production in the irrigated and rainfedand Risks: areas. It would also increase the number of functional

wel's and hafirs in the Eastern Region. The main risk isthe shortage of fuel for farm machinery and transportationof project components to the producing areas. However, inview of the recent decision by several major donors to helpmeet Sudan's immediate fuel requirements, this risk seemsmanageable. There are also the risks of further rainfailure and delay in project procurement. Participatingimplementing agencies were encouraged to prepare tenderdocuments for items to be financed by the proiect. Theprogram risks are considered acceptable in view of theemergency nature of the assistance and the critical needs tobe met.

Thidocument has a rstricted distibution and may be used by recipients only in the performanceoftheirofficial duties. Its contents may not otherwise be disclosed without World Bank authorzation.

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Estimated Program Cost:

USS MillionComponent Local Foreign Total

1. Farm Machinery

(a) Tractors 0.6 4.0 4.6(b) Spare parts 0.2 1.0 1.2

Sub-total 0.8 5.0 5.8

2. Agricultural Inputs

(a) Fertilizer (45,000 MT) 3.1 R.5 11.6(b) Jute Sacks 0.4 3.0 3.4

Sub-total 3.5 11.5 15.0

3. Water Supply

(a) Rehabilitation of Wellsand Rafirs 0.2 1.2 1.4

(b) Rehabilitation ofdrilling equipment 0.2 1.1 1.3

(c) Ancillary equipmentvehicles andmaterials 0.2 1.2 1.4

Sub-total 0.6 3.5 4.1

Total Program Cost 4.9 20.0 24.A

Of which taxes and duties 1.9 - 1.9

Total Program Cost(net of taxes and duties) 3.0 20.0 23.0

Financing Plan US$ Million

IDA Credit - 20.0 20.0Government of Sudan 4.9 - 4.9

Total 4.9 20.0 24.9

Estimated DisbursementsUSS million

IDA Fiscal Year FY86 FY87

Annual 17.0 3.0Cumulative 17.0 20.0

Rate of Return: Not applicableMap: IBRD No.18959

INTERNATIONAL DFVELOPMENT ASSOCIATIONREPORT AND RECOMMENDATION OF THE PRESIDENT

TO TRE EXECUTIVE DIRECTORSON A PROPOSED DEVELOPMENT CREDIT

TO THE DEMOCRATIC RFPUBLIC OF SUDANFOR THE DROUGHT RECOVERY PROGRAM

W 1. I submit the following report and recommendation on a proposedcredit to the Democratic Republic of Sudan (the Borrower) for SDR 20.2million (US$20.0 million equivalent) to finance the Drought RecoveryProgram. The credit would be on standard IMA terms to the Borrower, withonlending of US$9.0 million equivalent to the Agricultural Bank of Sudanbased on 10 years repayment including 3 years grace, and a service chargeequivalent to 9.6 percent annually with the foreign exchange risk borne bythe Government. US$3.5 million equivalent would be made available to theNational Water Corporation as a grant, and USS7.5 million equivalent wouldbe made available to the Sudan Gezira Board and the Rahad Corporation as acash sale.

PART I - TrE ECONOMY

2. An economic mission visited Sudan in January 1983. Its report('Pricing Policies and Structural Balances") No.4528a-SU of November 10,1983 has been distributed to the Executive Pirectors. A more recenteconomic mission visited Sudan in May 1984 and its report is expected to bedistributed in July 1985. The findings of the missions are reflectedbelow. Summary tables of social, economic and financial data are presentedin Annex I.

Background

3. Sudan, with an area of 2.5 million square kilometers, is thelargest country in Africa. It has a population of about 19.8 million (1982estimate) and is classified by the UN as a least developed country. Percapita GNP is estimated at about US$400. Much of the country is unoccupiedor very sparsely populated. Although about one third of the country isdesert or semi-desert, Sudan has considerable untapped potential for 'agricultural development. About two-thirds of the total land area issuitable for crop or pastoral production, but only a small fraction of thisland is under intensive use. The economy is heavily dependent on exportsof cotton, the major commodity from irrigated land, and on groundnuts,sesame and gum arabic. The manufacturing sector is relatively small and islimited to processing agricultural commodities such as cotton, oil seedsand sugar and to the production of consumer goods and building materials.A development of potential significance to Sudan's prospects is thediscovery of oil reserves in the southwestern part of the country. Anexport pipeline carrying around 50,000 b/d is planned, but construction hasbeen interrupted by the unsettled security situation in the southern partof the country. The public sector has long been important in the Sudaneseeconomy. It embraces all modern irrigation facilities, the railways,

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virtually all power and water supply, and a significant proportion ofindustry, commerce and finance. Although some industrial enterprises havebeen returned to the private sector in recent years, about half of the GDPis still generated within the public sector.

4. Between 1972/73 aud 1974/75, the deficit on the current accountof the balance of payment increased from US$11 million to about US$470million and remained between US$450 and US$550 million until 1979/80, whenthe combination of a doubling of oil prices and a serious decline in cottonproduction pushed the deficit to US$809 million in 1980/81 and US$1.3billion in 1981/82. Gross official reserves fell to only a few days worthof imports. By end 1982, external payments arrears had accumulated toabove $2.2 billion.

5. The crisis came about largely as the consequence of inadequateeconomic management policies compounded by external factors, such as thesharply increased cost of petroleum imports, which constrained theGovernment's ability to respond quickly with effective remedial action.Adverse developments in foreign trade were accompanied by other adverseforces -- reduced flows of external capital after 1976, mounting debtproblems, and absorptive capacity constraints.

6. The rapid increase in the value of imports came about partiallybecause of the sharp increase in oil prices and the steep rate ofinternational inflation, particularly in 1973/74 and 1974/75. There was,however, a sharp rise in the volume of imports between 1974/75 and 1977/78;since then, imports have actually declined in real terms. Exports declinedin real terms by nearly 50 percent between 1972/73 and 1981782. Thedecline was concentrated in cotton, which occurred because of a shift fromcotton to other crops and also because of falling cotton yields. Thevolume of cotton exports in 1981/82 was less than 15 percent of the 1971/72level. Transport difficulties and other infrastructural problemscontributed to this decline, as did declining maintenance in many public'irrigation schemes.

7. The rise in development expenditures after 1973 was financed inlarge measure by external capital, but because of absorptive capacityproblems, disbursements of this capital declined unexpectedly in themid-1970s, dropping from $465 million in 1974 to $332 million in 1977 and1978. Because of the slow disbursements and accumulating arrears, externaldonors became less willing to make new commitments. Sudan faced adifficult choice: either to cut back on projects just started or tomaintain the projects by running down foreign exchange reserves andborrowing from banks or other sources abroad. The Government decided totry to sustain the development effort by using reserves and by borrowingheavily on relatively hard terms. Annual external public debt servicepayments falling due increased from $55 million in 1972/73 to more than$800 million in 1982/83. The debt service burden as a proportion ofexports of goods and services increased from 12 percent in 1972/73 toover 100 percent in 1982/83. This unfavorable debt profile led not only toa heavy current debt service burden, but also has critical implications forfuture debt service obligations.

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8. The structural weakness in Sudan's public sector finances becameincreasingly pronounced during the course of the 1970s. Sharp increases inexpenditures were not matched by increases in revenue. The consequentsharp rise in public sector demands on the domestic banking system led to arapid acceleration in the growth of money supply, which reached 44 percentin 1976/77. Although the monetary expansion slowed in succeeding years,the growth rate over the period 1977/78-1980/81 still averaged nearly 25percent per year; during 1980/81, the rate of expansion again rose toaround 50 percent and, after a slowdown in 1981/82, rose again in 1982/83by around 30 percent. This contributed to an acceleration in annual priceincreases from 6 percent in the early 1970s to over 30 percent in 1982,1983 and 1984.

9. Against this background of serious payments imbalances andgeneral economic crisis stemming from structural maladjustments inproduction and trade, starting in 1978 the Government undertook significantpolicy changes to establish financial equilibrium, to restore export growththrough appropriate policies and public investments, to improve theperformance of the public corporations, and to install an adequate systemfor management of the nation's external debt.

Export Promotion and Public Investment Programs.

10. An essential aspect of the Government's recovery program since1979 was a concerted drive to increase foreign exchange earnings throughincreased exports. This was carried out under the Export Action Program(EAP), initiated in mid-1979. The EAP was designed to raise the volume ofcotton exports at an average rate of 7 percent per annum during the period1979-91. By mid-1981 the actual production of seed cotton had in factdeclined further, but 1981/82 saw a substantial recovery with a 51 percentincrease in production volume. This improving trend was continued in1982/83 with a further 23 percent increase, and in 1983/84 another 10percent increase was realized. Several investments in the irrigatedsubsector are supporting this export recovery. Under the AgriculturalRehabilitation Program (Credit No. 1000-SU of US$65 million and EEC SpecialAction Fund Credit of about US$11 million), funds were made available forurgently needed spare parts and equipment. Several rehabilitation projectsare being carried out in the 1980s. The New Halfa Rehabilitation Project,Credit 1022-SU, approved in May 1980, was the first of these, followed byprojects for the Blue and White Nile. A rehabilitation project for thelargest irrigation scheme, the Gezira, was approved in June, 1983. TheAgricultural Rehabilitation Program II (Credit No. 1389-SU) provided muchneeded foreign exchange for purchases of agricultural inputs in thesub-sector in 1984. In addition, important policy measures were taken inthe areas of cost recovery, cotton pricing and marketing, and institutionalreform. Simultaneously with the EAP, the Government reduced the size ofits overall development program, as reflected in the Six-Year Plan, to arealistic level consistent with expected external and domestic financialresources.

Financial Stabilization and IMF Agreements.

11. In June 1978, a stabilization program was announced as part of aStand-by Agreement with the IMF. The Agreement included a variety ofmeasures to establish a more realistic exchange rate, reduce deficit

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financing, control foreign borrowing, and improve production incentives,particularly in the irrigated agricultural sector. In May 1979, agreementwas reached on similar policy actions that allowed access to a three-yearExtended Fund Facility (EFF).

12. In November 1980, the Fund Board approved a second year programunder the EFF. Because of non-compliance with agreed targets, theGovernment was not able to make drawings in the third and fourth quartersof 1980/81. Subsequently, further measures, together with pledges at aspecial Donors Meeting in January 1982 that closed the financing gap in theprogram, made it possible in the following month for the IMF to approve aone-year Stand-by Arrangement for Sudan. However, this program also lapsedin mid-term because of the Government's inability to comply with all of itsconditions.

13. Further policy measures were taken in December 1982, including a44 percent devaluation of the Sudanese Pound. The Government also prepareda comprehensive medium-term recovery program, Prospects, Programmes andPolicies for Economic Development, 1982/83-1984/85 (PPPED); this documentformed the basis for discussions at the Consultative Group Meeting in Parisin January 1983. The outcome of this meeting, together with a new debtrestructuring package obtained from the Paris Club in February 1983 enabledthe IMF to approve a Stand-by Program for 1983 for a total amount of SDR170 million, which Sudan completed satisfactorily on February 22, 1984.

14. At a subsequent Consultative Group Meeting held in Paris onDecember 14-16, 1983, the Government presented its updated version of themedium-term recovery program document, and requested program and projectaid to support the recovery program. At this meeting, the Government wascommended by many donors for the actions taken during 1983 to implement itsrecovery program, and donor assistance in the form of commodity and projectaid was indicated as likely to be forthcoming at a level which would bealmost adequate to support it. Subsequently additional commodity aid waspromised at a level which the IMF considered to be adequate to close thefinancing gap for 1984.

15. In May 1984, following the December 1983 Consultative GroupMeeting, the Paris Club agreed to reschedule Sudan's official externaldebts falling due in 1984 on terms which were consistent with the proposedIMF Standby Arrangement for 1984, and the new Standby Arrangement wasentered into on June 25, 19B4. The first tranche was drawn down soonthereafter. However, Sudan was not able to discharge repayments to the IRMFwhich fell due in July 1984, and exchange rate adjustments scheduled forJuly were not made. Therefore, the IMf Standby Arrangement lapsed shortlyafter it had gone into effect, and no further IMF drawings were madeavailable during 1984.

16. As a result of the uncertainties regarding the IMF Standby, donorcommodity aid in 1984 lagged well behind the levels anticipated at theDecember 1983 Consultative Group Meeting (estimated actual of about $270million compared to an anticipated $470 million). Also, while exportreceipts from irrigated agriculture (i.e. cotton) met expectations in 1984,drought in the rainfed areas reduced the export of sorghum, groundnuts, and

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gum Arabic. With foreign exchange receipts lagging behind expectations dueto the lag in donor aid, IMF drawings, and reduced exports of rainfedcrops, the Government fell behind in its debt service obligations to theIMF, the Paris Club, and to other bi-lateral creditors. Ry the end ofDecember 1984, Sudan was about $260 million in arrears on its official longterm debt oDiigations.

Other Developments

17. In 1983 the Southern Region, which had previously had a semi-autonomous status, was divided into three separate regions. Armedresistance forces emerged in the south, and attacks on the Chevron oilexploration activities and construction work on the Jonglei Canal causedthese operations to shut down. More recently, Chevron has partiallyresumed its operations in Sudan but on a very limited basis.

18. In August 1983 three measures were enacted into law based on theKoran, called Sharia laws. These included changes in the penal code,banning of the sale of alcohol, and a prohibition on the collection ofinterest in courts of law. The civil code was extensively revised in March1984. Early in 1984 direct taxes and some excise taxes were abolished andreplaced with a traditional Islamic tax and welfare system called Zakatto be administered by a separate Zakat organization and levied at the locallevel for use in part for social welfare purposes.

19. Starting in September 1984, the Government took steps to reducethe adverse budgetary effects of the Sharia changes. Most of the directtaxes which were abolished were restored, sugar retail prices wereincreased (from 26 to 30 piasters/lb.), and electric pover tariffs wereincreased 21 percent in November 1984 and 23 percent in March 1985. Also,the exchange rate applicable to most exports and to commercial bank andcommodity aid imports was increased in February 1985 to LS 2.5/US$ (from1.42 for exports and 1.8 for imports in October 1984) in order to providean adequate incentive to exports and to restrain demand for imports. InNovember, the Government requested that the ThE send a technical assistancemission to Sudan to assist in working out a comprehensive adjustmentprogram which the IMF would find acceptable. A Fund mission went toRhartoum for this purpose in December and January, and a follow-up missionin March of this year was able to confirm that the Government had

a substantially implemented the recommendations of the December and Januarymissions, including price increases for petroleum products, bread and wheatflour, soap, edible oil, pharmaceuticals and electric power tariffs.

Recent Political and Economic Developments

20. Demonstrations and strikes in the public services began on March30 in response to the price increases which were put into effect in March.The demonstrations gained force as the demonstrators broadened theircomplaints to include the rough treatment used by the security forces,mismanagement of the economy, corruption, and the severe punishmentsimposed under the Sharia laws. Support for the demonstrations came fromthe professional syndicates, the labor unions, and the political parties.

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The Government rescinded the price increases for bread, soap and edible oilbut this did little to appease the demonstrators. On April 6, 1985 a groupof senior military officers led by the Minister of Defence took over theGovernment. Decrees were issued, after consultation with the demonstratinggroups, calling for the unification of the country, a guarantee of humanrights and basic freedoms, the creation of a constitution establishedthrough a democratic process, and return to civilian rule after a limitedtransition period. All existing Ministers of Go-ernment and RegionalGovernors were dismissed, Parliament and the Government-supported politicalparty SSU were dissolved, and a Transitional Military Council consisting of15 senior military officers was established to act as a legislative andpolicy making body for the country. The Council in turn appointed acabinet consisting mainly of civilians to administer the Government duringthe transition period.

21. The new Government is in effective control and enjoys areasonable degree of stability and public acceptance. Its statements andactions, including servicing outstanding Bank loans and IDA credits, showthat it recognizes the past obligations undertaken to the World Bank Groupand, in general, the country's in.ernational obligations. It has so faracted with caution and restraint regarding economic policies, and hasindicated that it appreciates and hopes to continue the donor support whichhas been assisting in drought relief and support for the economy. While itis too early to have a clear indication of future economic policies, it isencouraging that the new Government has not rescinded any further measuresput in place by the previous Government in February and March. While thereis still no resolution of the difficult arrears situation, non-project aidflows have increased substantially since the change of Government and theshortage of petroleum, which was hampering transport activities, has atleast temporarily been relieved.

PART II - BANK GROUP OPERATIONS IN SUDAN

22. World Bank Group gross commitments to Sudan to date totalUS$1,009.5 million. Of this, US$33.0 million are IFC commitments. Therehave been eight loans (two on Third Window terms) and 37 credits for atotal of 39 projects. Twenty projects are under implementation. Over50 percent of total Bank/IDA lending has been for agricultural development:seven irrigation projects, three rainfed mechanized farming projects, foursmallholder development projects; two livestock marketing projects; anagricultural research project; two Agricultural Rehabilitation ProgramCredits, an agricultural credit project; and a sugar rehabilitationproject. Projects in other sectors include: three power projects, threeeducation projects, three highway projects, a domestic aviation project,four railway projects, two port projects, two technical assistanceprojects, two industrial credit projects,and a petroleum developmentproject. Over the past two years, IFC has been assisting the Governmentand White Nile Petroleum Company in preparing and mobilizing funds for amajor export pipeline project as part of the development of the Unity andHeglig oil fields. Annex II contains a su mary statement of Bank loans,IDA credits and IFC investments as of March 31, 1985.

23. Physical progress in implementing development projects in Sudanhas been mixed. Many projects have difficulty in getting key materials -cement, fuel and timber of which there are periodic shortages. Belateddelivery of equipment and supplies due to transportation difficulties alsoaffects most projects. The continuing drain of skilled manpower to theMiddle East oil rich countries takes its toll on effective preparation andimplementation of projects. There have also been lengthy delays in meetingeffectiveness conditions, mainly because of problems in establishing newinstitutions or project accounts, hiring key staff, completing necessarylegal documentation, or concluding required co-financing arrangements.These problems have been brought to the attention of Governmentauthorities, both through supervision missions and annual CountryImplementation Reviews, and steps have been taken to resolve some of themsuch as in procurement and obtaining legal opinions.

24. The disbursement rate, i.e., actual disbursements during the yearas a percentage of the undisbursed balance at the beginning of the year,declined from 23.4 percent in FY78 to 12.1 percent in FY81, but the rateimproved markedly to 27.7 percent in FY82 and 25.8 percent in FY83. TheFY84 disbursement rate declined to 10_0 percent, as compared to 23.0percent for Eastern Africa and 23.4 percent Bank-wide, as the result ofdelays in implementation of several large projects and the completion ofdisbursements of the Agricultural Rehabilitation Program (IDA Credit1000-SU). However, disbursements have increased substantially in FYS5 dueto the disbursement of the entire proceeds of ARP II (IDA Credit 1389-SU)in this fiscal year.

Relationship to Other Aid Flows

25. Bank and IDA lending - both new commitments and disbursements -represent about 10 to 15 percent o' total aid flows to the Sudan. Weexpect that this relationship will continue at about the same level duringthe next several fears. Bank and IDA obligations represent about 6 percentof Sudan's total outstanding and disbursed debt. Bank/IDA debt service wasonly about 1 percent of Sudan's total external debt service falling due in1983. While this may rise slightly in the next several years, it willremain a very small portion of Sudan's total debt service obligations.

Assistance Strategy

26. The Bank Group assistance strategy has been to encourage tneGovernment to undertake a broad program of economic reform aimed ataddressing the structural imbalances in the economy. We have been workingvery closely with the Government and the IMF in the development andimplementation of Sudan's economic recovery program, which formed the basisfor Consultative Group meetings in January and December, 1983 and StandbyArrangements with the IMF. This was followed by the creation of a JointMonitoring Committee (JMC), where the aid donors and the Government jointlymonitor progress in carrying out the program, and continued Bankinvolvement in reviewing updated versions of the recovery program. The keyelements of the strategy are:

- Improved Balance of Payments: support for development projectsand policy actions which help the country to generate or save

foreign exchange, with investment priority given torehabilitation of existing capital investments.

- Key Infrastructure: support for infrastructure projects whichrelieve the most critical bottlenecks inhibiting productiveoutput (power, transport).

- Resource Mobilization: encouragement to Government to increasethe level of domestic resource mobilization as the basis forsustained increases in output.

- Longer-Term Development: assistance to Government to prepare theway for longer term development activities through improvingresearch and extension, and studies of irrigated water usepriorities and rainfed agricultural potential.

27. At the sector level, IDA has continued to emphasize therehabilitation of irrigated agriculture, Sudan's major export earner, plusimprovements in infrastructure needed to service the agricultural sector.The Agricultural Rehabilitation Program I was effective in providing badlyneeded spare parts and replacement machinery for the irrigated sector, aswell as encouraging the Government to take some important steps towardimproving incentives to farmers through better cotton prices and costingarrangements for the irrigated schemes, and the Agricultural RehabilitationProgram II (IDA Credit 1389-SU) followed up this earlier effort with thefinancing of recurrent agricultural inputs.

28. On the whole, the Bank's assistance strategy has been effectivein encouraging the Government to undertake measures which have restoredcotton production to the levels achieved in the early 1970s. During thepast three years, exports have expanded and the foreign exchange gap hasbeen reduced, the Public Investment Program has been appropriate, and someinternal production (i.e. sugar and cement) has expanded. No progress wasmade, however, in increasing the proportionate level of resourcemobilization, and parastatal financial losses remain at a high level.During 1984, in part because of the uncertainties caused by the Sharia lawchanges and the insurgency in the south, the recovery program seemed to becoming off the track. The actions taken in February and March to put theprogram back on a sound basis caused a political reaction as described inpara. 19, but nevertheless most of these measures remain in place.

Relationship of Drought RecoveryProgram to Bank Strategy

29. The principal objective of the Drought Recovery Program (DRP)will be to provide emergency assistance needed to increase food productionin Sudan in the short term. As such, it vill help to alleviate the needfor the massive food imports required this year, will restore the economicproduction capacity of the country, and will reduce the dislocations causedby the movement of farm families from drought stricken areas. Thus, itwill reduce Sudan's dependence on outside assistance and imports consistentwith the Rank's assistance strategy, and will help to avoid furtherdeterioration of the economy which would make the longer term Aevelopmentobjectives even more difficult to achieve.

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PART III - THE AGRICULTURAL SECTOR

30. The agricultural sector dominates the Sudanese economy. Itprovides for the livelihood of 80 percent of the population and contributesabout 40 percent of GDP and 95 percent of exports. The Bank published asurvey of the Agricultural Sector in May 1979 (Report No. 1836a-SU) and areview of the sector is included in the Bank economic report 'Sudan -Investing for Economic Stabilization and Structural Change' issued inFebruary 1982 (Report No. 3551a-SU).

31. About 20 million feddans of Sudan's central plains are cultivatedannually, of which 4.2 million feddans are under irrigation. The rest isunder rainfed cultivation, both mechanized and traditional.

The Irrigated Sub-sector

32. About 85 percent of the irrigated land (3.4 million feddans) aremanaged by public corporations: The Sudan Gezira Board (2 millionfeddans), New Halfa (0.4 million feddans), Rahad (0.3 million feddans), andthe Blue and White Nile Pump Schemes (0.7 million feddans). About 50percent of agricultural export earnings were derived from cotton in theL970-80 decade, mostly from the irrigation schemes managed by thesecorporations.

33. The pattern of production relations developed at Gezira, theoldest and largest scheme, has served as a model for the others. Afterattempts to use wage labor and a rental system failed, a partnership wasdeveloped based on the traditional allocation of crop shares on landsadjacent to the scheme. Revenues were divided between the Government,which was responsible for developing and providing irrigation to the land;a corporation responsible for agricultural services; and tenantsresponsible for supplying labor, seed, tools and farm animals. Under thissystem, most of the items of expenditure incurred by agriculturalcorporations for the different crops grown on the tenancies were deductedfrom the total revenues received from cotton sales by the corporationconcerned.

34. This arrangement, called the "Joint Account System," penalizedthe more productive cotton growers, whose costs per quantity of output werelower than the less productive farmers. The most serious consequences ofthe Joint Account System, however, were felt when cotton yields fell at thesame time as other crops such as sorghum, grounduuts and wheat, becameincreasingly important. These other crops are privately marketed, so thatthe corporation could not recover input costs at sale. Therefore, land andwater costs for these crops had to be recovered from cotton revenues.Cotton, bearing the burden of these other charges, became less and lessattractive to tenants, who increasingly devoted more attention to othercrops and off-farm activities, while producing corporations were unable tocover maintenance costs and replace equipment. Declining exports also ledto shortages of the foreign exchange needed to buy spare parts and inputs.Inputs were delivered late, cultivation techniques deteriorated, and yieldsof a3l crops fell. Also, the producer price of cotton was held low by theGovernment to maximize short term budgetary revenues in the face of a weakfiscal base strained for cash to finance new investments.

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35. The effect of all of these factors was a sharp decline In thevolume of exports of Sudan's traditional cash crops, long staple (ELS)cotton, sesame and groundnuts. The annual export volume of these threecrops averaged only 81,000 tons, 41,000 tons and 43,000 tons respectivelyduring the 1979-81 period, compared to 168,000 tons, 70,000 tons and 99,000tons in 1972-74. Only because the terms of trade were in Sudan's favorduring the period, both for cotton and for oilseeds, was the decline invalue not more dramatic. Nevertheless, the reduction in agriculturalexports played a major part in Sudan's current economic difficulties.

36. Strategy for Revival of Agricultural Exports. Recognizing theseverity of the problem, the Government, with the help of the Bank, drew upthe Export Action Program in 1980 designed to restore production to thelevels of the early 1970s. The EAP contained provisions for: (i) urgentlyneeded investments aimed at satisfying requirements for spare parts,machinery and equipment in order to arrest decapitalization which hasplagued the sub-sector; (ii) allocation of foreign exchange to financelarger imports of current inputs; (iii) a series of rehabilitationprojects, with IDA support, to be carried out in the 1980s, principally inthe major agricultural schemes where cotton is grown; and (iv) policyreforms and other actions such as institutional reforms and revision of theincentive systems intended to stimulate greater production.

37. In line with the strategy embodied in the EAP, IDA financedprojects for the rehabilitation of the New Halfa (Credit 1022-SU), BlueNile Pump (Credit 1118-SU), and White Nile Pump (Credit 1119-SU) schemes.Another IDA credit, to finance the rehabilitation of the Gezira irrigatedareas, was signed in August 1983 although it just became effective in Nay1985 due to problems with co-financing originally planned for financingpart of the project. A Sugar Rehabilitation Project, for the four sugarunits in the public sector, was signed in August 1984. All rehabilitationprojects include measures to improve management capabilities, such as thedesign of regular work programs and improved financial management,technical assistance and training.

38. About 15 percent of the irrigated land consists of privatelyowned small farms extending along the Nile North of Khartoum to theEgyptian border. Other private schemes have been established along theWhite Nile and Blue Nile Basin. While the large irrigation schemes (para.32) have concentrated on cotton production, the private schemes havespecialized in food, vegetables and forage crops. The IDA financed-Agricultural Services Project' (Credit 1201-SU) and IFAD financed"Northern Region Agricultural Rehabilitation Project" are designed toprovide private schemes in the Northern Province with necessary farminputs, water pumps, farm machinery, and agricultural credit. Theseprojects support the Agricultural Bank of Sudan (ABS), the Northern RegionMinistry of Agriculture and other local institutions. ABS's performanceunder the Agricultural Services Project has been very good, and hasdemonstrated its competence to handle procurement, supervised creditand collections.

39. Results Achieved. On the whole, available evidence indicatesthat the Export Action Program has reversed the downward slide inproduction and productivity in the irrigated sub-sector. After a further

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decline in 1980/81, cotton production increased 51 percent in 1981/A2 (59percent increase in the irrigated areas) compared to the previous year,another 23 percent in 1982/83 compared to 1981/R2, and another 10 percentin 1983/84 compared to 1982/83. Yields have increased for all the majorcrops (cotton, groundnuts and sorghum). In the Gezira, for example, yieldsof long and medium staple cotton have increased from 2.1 kantars/feddan(k/fd) and 3.9 k/fd respectively in 1980/R1 to 4.0 k/fd and 5.8 k/fd,representing 90 and 49 percent increases. These yields are back to earlierhistorical levels, and reflect not only measures taken in the context ofthe Government's Export Action Program as outlined above, but also the muchimproved availability of critical inputs -- water, seeds, fertilizers,pesticides and machinery services.

The Rainfed Sub-Sector

40. More than 50 percent of Sudan's total rainfed crop area (16million feddans) is under mechanized farming in the Eastern and CentralRegions. The rest is traditionally cultivated by small farmers, largely inthe Southern Kordofan, and Darfur regions.

41. In the mechanized farming areas, about six millior. feddans arecultivated by individual farmers, and about two million feddans by Sudaneseor foreign commercial companies. The Mechanized Farming Corporation (MFC)supervises farming operations on 3.6 million fd. which are divided intofarms of 1,000-1,500 feddans each rented at an annual rate of two Sudanesepounds per feddan for a period of 25 years to individual farmers. So far,about 6,000 farmers have been registered at MFC as cultivators. Under MFCrental arrangements, the corporation provides farmers with limitedservices, and certifies them for credit from the Agricultural Bank ofSudan. MFC is also expected to guarantee fuel supplies and spare parts.Some of MFC's services have been financed under the Mechanized FarmingProject III (IDA Credit 804-SU). In addition to the area under T'FCsupervision, there are about two million feddans of undemarcated landcultivated by unregistered farmers. This area is largely marginalagricultural land and its cultivation has created conflicts with livestockowners, has contributed to soil erosion, and has seriously increased therate of desertification.

42. In 1982, the mechanized rainfed sub-sector produced more than 70percent of Sudan's sorghum and 40 percent of its sesame. About 25 percentof this sub-sector's production under normal conditions is exported toSaudi Arabia and other Middle Eastern countries. Mechanized farms useimported inputs, mainly tractors, fuel and spare parts, for landpreparation and planting. Weeding and harvesting are still done by hand.

43. The traditional rainfed sub-sector employs more than 8s percentof Sudan's rural labor force in the central, eastern, western and southernregions. Major products of this sub-sector include gum arabic, livestock,groundnuts, sorghum, millet and sesame. These are produced by traditionalfarming methods which are labor intensive and do not use imported inputs.Hand operations are used in lieu of machinery. Annual production in thetraditional sub-sector can vary from as low as 500,000 tons of sorghum to ahigh of over 1,000,000 tons of sorghum and 100,000 tons to 200,ono tons of

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sesame. Such large fluctuations are apt to influence local markets byraising prices when supplies are short and depressing prices whenproduction is high. The failure of the 19R3/84 sorghum and sesame crop inthe traditional sub-sector is estimated to have reduced foreign exchangeearnings by around 17S$120 million in 1983 alone.

44. The overall production of the rainfed sector increased steadilyin the early 1970s and peaked in 1978-1990. Output of sorghum, millet,groundnuts and sesame increased during this period through expansion of thearea cropped while yields declined due to declining fertility of the areasunder continuous cultivation.

Rural Water Supplies

45. In areas where groundwater can be tapped, shallow and deep wellshave provided dependable supplies of drinking water to many Sudanesecommunities. In areas where there may be no usable sources of groundwater,water is obtained by catching and storing surface runoff in open pondscalled 'hafirs". Such ponds, with a capacity ranging from a few thousandcubic meters to over 100,000 m3, can be filled either by directing runofffrom an adjacent tract of land arranged to serve a local catchment, or by adiversion from nearby seasonal streams. The National Water Corporation(NWC), a wholly-owned Government subsidiary, and its regional offices areresponsible for well drilling and hafir construction. NWC with assistancefrom several donors, has accelerated a program of rural water supply aimedat expanding water availability to one million people each year. Since theinitiation of this program in 1981, the situation has deteriorated ratherthan improved. The severe drought reduced the fraction of the populationin rainfed areas having a dependable and safe supply of drinking water.The effort to alleviate the present plight and to regenerate progress inrainfed areas has become an urgent imperative to the revival andimprovement of rainfed agriculture.

Relevance of the Rainfed Sub-Sector to the Bank's Strategy in Sudan

46. The Bank Group's assistance strategy for this sub-sector has beento assist the Government to formulate an action program to address theconstraints to its development. IDA has supported the successfulimplementation of the Western Savannah Development Project (Credit No.1181-SU) and a second phase is being processed to be financed in FY1986.The Western Sudan Research Project (Credit No. 834-SU) and LivestockMarketing Project (Credit No. 782-SU) have been designed to improveproduction in Sudan's rainfed areas. The Mechanized Farming Project III(Credit No. 804-SU) is the last of a three-phase project supported by IDAto expand production under mechanized farming including institutionbuilding, provision of farm machinery, and improving research, extensionand other field services to the farmers in this sub-sector. Resultsachieved in the rainfed areas have so far been limited to identifyingsuitable production technology for the savannah zone, and in defining areaswhere policy matters have to be articulated, especially in relation tocredit, land resource management, and institutional responsibilities.

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Impact of Drought on the Country

47. Climate and Rainfall. Sudan is situated in a transition zonebetween the humid tropics and the desert. The Ethiopian highlands and thehumid tropics provide Sudan with water in the Nile and its tributarieswhich is the basis for the country's irrigated agriculture. Proximity tothe desert, on the other hand, subjects the non-irrigated lands of Sudan tothe periodic threat of drought. MIore than two-thirds of the country isarid or semi-arid, with the degree of aridity increasing northward, as meanannual rainfall varies from over 1,200 millimeters in the south to lessthan 50 in the north. Recently, however, drought has become morefrequent. Rainfall records for the Sudan zone show a severe drought duringthe 1910-1915 period, followed by a relatively steady rainfall period from1915 to 1950, followed by a decade of above average, but declining rainfallfrom 1950 to 1960. That decline, beginning about 1950 and falling belowthe long term average in about 1970, has continued to the present day. Ithas been the longest and most severe downward trend on record. Not onlyhas the trend been downwards, with rainfall seasons becoming shorter, butthe variability within the trend has increased. However, although theperiod since 1970 has produced rainfall consistently below the average,with the last 3 years being particularly severe, there is no strongstatistical evidence that Sudan has moved permanently to a lower rainfallregime.

48. The effect of the drought on agriculture has been severe. As ageneral rule in Sudan where evaporation is high and rainfed farming isbased on rainfall in the hot summer months, farming can be sustained onlyif mean seasonal rainfall exceeds 450 mm, and if no more than one seasonout of five has less than 350. In each of the last three years, however,seasonal rainfall dipped below 250 mm over large areas in Sudan and as afinal blow, fell as low as 100 mm in large rainfed zones last year. Theresult has been widespread crop failure, drying of storage ponds, depletionof shallow wells, destruction of natural vegetation by grazing and thecollection of firewood, and decimation of livestock herds. Numerousvillages have been abandoned and their population displaced. In theabsence of seeds, tools, fuel, capital, and even workers, no quick orspontaneous recovery of agriculture can be expected even if, as hoped, thenext few seasons provide ample rainfall unless an urgent program ofmaterial and technical assistance is implemented.

Effects On the Economy

49. The worst hit areas stretch mainly across the middle of thecountry from about Atbara in the North to Kosti in the south with branchesrunning up the Nile to the North and to the east in the Port Sudan area.Approximately one-third of the population are believed to be directly andseriously affected by the drought. The highest percentage affected withinone region is the Eastern Region with over 50 percent of the peopleaffected including a large number of refugees from Ethiopia.

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50. At the aggregate economic level, the impact of drought has beensomewhat attenuated by Sudan's substantial irrigation areas. Nevertheless,the fall in rainfed yields has reduced the agricultural GDP quiteseverely. From a relatively flat base of about LSdl,400 million over the78/79 to 80/81 period, GDP rose to 1,670 million in 81/82 and then fellback to LSdl,375 million in 1983/84. Food production has declined and in1984 grain production was about 2 million tons, or one third below what isrequired, and about one-third of the population has been seriouslyaffected. Food aid is currently flowing in to meet the deficit. Thecancellation of all export licenses for sorghum and oil seeds in 1982-85cost the country about US$400 million in foreign exchange over thethree-year period. Without this source of funds, the country is unable toimport farm machinery or other farm inputs. It is at the farmers' andpastoralists' level rather than aggregate economic level that the impact ofdrought can be seen in human terms. Many farmers have harvested nothingfor two or three years. The initial response was to turn to non--'armingsources of income such as wood collection and selling off assets such aslivestock. Once these assets were depleted, families abandoned villages.Many moved to the large irrigation schemes or to Khartoum to find casualwork for food. Large permanent population movements from No-;th- Kordofanand North Darfur have been reported in addition to more thau one millionrefugees who have entered Sudan from neighboring countries.

51. Effects on Agriculture. Sorghum, Sudan's most important staplefood, is in short supply. The country produces an annual average of 2.5million tons of which 300,000 tons were exported to neighboring countriesprior to 1982. Production in the last three seasons averaged 1.4 milliontons. Similarly, production of oil seeds was reduced by 50 percent andannual. exports which previously averaged 100,000 tons were cancelled. In1984, millet production, grown on three million feddans in Northwest Sudan,was 150,000 tons or 40 percent of annual production, and wheat productionwas 20 percent of that production in previous seasons. In the livestocksector, substantial reductions in the national herd have occurred, due bothto distress sales and to deaths due to dehydration and starvation. Animalfeed is scarce, large areas of rangeland in the North have been overgrazed,and surviving livestock are concentrating in southern grazing areas whichposes a serious danger to both animal health and to the grazing and fodderreserves in this zone. Available data do not permit a reliable assessmentbut the reduction in the national herd size is estimated to be about 20percent of the 1982/83 base.

52. Effects on Rainfed Agriculture. Sudanese farmers in the rainfedzone continued to cultivate despite a decrease in rainfall during the pastthree seasons. Indeed, the area under cultivation actually increased,apparently in an effort by farmers to compensate for a decline inproductivity with repeated crop failures in the last three seasons,and farmers' investments in land preparation and seeds were not recovered.Many farmers have not been able to replace their machinery or to replenishtheir seed supplies. Farmers' requests submitted to the Agricultural Bankof Sudan for farm machinery, spare parts, and seeds loans have increased

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substantially. For farm machinery alone, the number of requests fortractors has increased from an average of about 400 in the previous seasonto about 800 in 1984. The Government estimated that about 35,000 tons ofadditional seeds are needed for sorghum, millet, wheat and grounduuts tomeet farmers' needs in the traditional areas. This situation could lead toa reduction in cultivated area and hence sorghum and sesame production inthe coming years.

53. Effects on Irrigated Agriculture. The drought has increasedthe country's reliance on the irrigated areas. Refugees from Western Sudanhave temporarily settled in the irrigated triangle between Kosti, Sennar,and Wad Medani seeking employment and food. Because of a decline in theflow of water in the Nile River, wheat cultivation was not permitted on theGezira and New Halfa Schemes during 1984/85. With a reduction in rainfedsorghum production, the large irrigated schemes are being called on toincrease food production. Indeed, the area under irrigated sorghumcultivation in 1984/85 was 50 percent higher than the previous season. Ifnot well supervised and planned, farmers may respond to the high localprices for sorghum by expanding sorghum production at the expense ofcotton, a crop with a higher economic return to the country. Failure toaddress this point could adversely affect cotton production on theseschemes, especially if drought conditions continue in the coming seasons.

54. Effects of Water Supplies on Human and Agriculture in RainfedAreas. Over large areas in northern, eastern and western Sudan, watersupplies have dwindled drastically because of the prolonged drought, and inmany cases have run out entirely. The aquifers which are normallyrecharged by the excess of rainfall over evapotranspiration, as well as byseepage from seasonal streams, have apparently not been so recharged duringthe drought. In the absence of recharge, the continuing extraction ofwater from wells (coupled with natural drainage) has caused the water tableto fall so that numerous shallow wells have ceased to be operational.Consequently, these wells have been neglected and their equipment hasdeteriorated for lack of maintenance. Some of the boreholes are clogged,in some the casings and pipes (often of inferior materials) have rusted,and the tanks and troughs are no longer water tight.

55. An analogous situation exists in areas served by ponds (hafirs).Nearly all of the hafirs have dried out owing to incomplete filling duringthe rainy season, to seepage into the cracked soil, and especially to theheavy evaporation induced by the sun and the hot dry winds. In many of thehafirs, the inlet structures are clogged, the bottoms are silted up, theoutlet structures are in disrepair, and there are no elevated storage tanksor filters to ensure the supply of clean potable water even when the rainsdo come. In the case of self-catchment hafirs, the area meant tocontribute surface runoff is so dry and cracked that hardly any runoff canbe expected in early season. Hence it will be some months before thesehafirs are likely to fill up again even if the coming rainy season will bea normal one. In the case of stream filled hafirs, in some cases thediversion structures have been silted up. The perennial problem ofmaintenance is exacerbated by the drought, as people leave their villagesand abandon the hafirs as well as their wells.

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Government's Response to Longer-Term Drought Issues

56. The Government's response to the drought has primarily beenshort-term. The lives of a large number of people have been threatened,and meeting the immediate need of obtaining and delivering food and waterhas been the priority. Areas affected by the drought have been receivingfood aid from bilateral and UN relief agencies. The World Food Program,the European Economic Community and the United States are mobilizing aid toprovide about 1.4 million tons of food, and are preparing emergencypackages of medical supplies, water drilling equipment, and other itemsneeded to sustain refugee settlements in Sudan. However, in the longerterm the Government does intend to address a range of Issues relevant torainfed agriculture and drought. For this purpose, the Government hasappointed four Task Forces supported by a SPPF from IDA: (i) a PricingMarketing and Incentives Task Force; (1i) a Technology Task Force; (iii) aLand Tenure Task Force; and (iv) an Organization, Institutions, Financeand Credit Task Force. These task forces started operation in April 1985and will submit their reports before the end of the year. Thereafter,their findings will be discussed with IDA to develop an action program toaddress these longer-term issues. The Government Strategy Statement atAnnex VI outlines the Government's intentions in this respect. Agreementwas obtained during negotiations that by December 31, 1985, the Governmentwould discuss with IDA the recommendations of the Task Forces and adetailed plan of action for the implementation of agreed recommendations(Section 3.04, draft Development Credit Agreement). The IDA lendingprogram includes projects in the forestry and rainfed sectors in the lateeighties which would benefit from the development of such a strategy.

PART IV - THE DROUGHT RECOVERY PROGRAM

57. An IDA mission visited Sudan in March 1985 to design and appraisethe proposed program in consultation with the Government. A Credit andProject Summary is provided at the beginning of this Report. There is noStaff Appraisal Report. Negotiations were held in Washington DC from May20-22, 1985. The delegation was led by Mr. Yousri Gabr, Deputy UnderSecretary, Ministry of Finance and Economic Planning.

Project Rationale

58. The principal objective of the drought recovery program would beto provide emergency assistance needed to increase food production in Sudanin order to reduce Sudan's sizeable food deficit and to help restore theeconomy to its pre-drought level of agricultural output. A secondaryobjective would be to alleviate the economic distress caused to farmers inSudan as a result of the drought by restoring their capacity to resumeagricultural production. The program would also help to alleviate theserious foreign exchange constraint imposed on the economic recoveryprogram by the drought, and will serve to encourage the Government to carryout the development of a long-term strategy for the rainfed agriculturalsub-sector. The program design is based on experience with other drought

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projects which have demonstrated that effective results can be obtainedwhen consideration is given to short-term targets, within a simplifiedframework designed to meet the urgent needs of the affected farmingcommunities. The program would be short-term, with the bulk of thedisbursements expected to be completed by December 31, 1986. In view ofthe short-term nature of the program, procurement and distribution would behandled by existing institutions which are already capable of performingthese functions. Assistance would he provided both to rainfed andirrigated food producing areas, including areas adversely affected by thedrought as well as those not directly affected but which have goodpotential for expanding food production in the short term. The program hasbeen designed to complement the recovery assistance which is expected to beprovided by other aid organizations.

The Structure of the Drought Recovery Program

59. The program will focus on (a) restoring food production capacityin the high potential zones, and (b) improving potable water supplies tosome of the drought affected areas. A key consideration in the design ofthe program would be a quick impact on a short term basis. The programwill mainly provide urgently needed inputs for food production in theirrigated and mechanized rainfed areas during 1985/86 season. Theimprovement of potable water supplies was included because drinking watermust be available to farmers if they are to remain in the producing areas.The program components have been selected after a careful review of whatother donors are doing in this area. Drought recovery coordination withinthe Government will be carried out by the National Committee for CombatingDrought and Desertification established for this purpose and chaired by theHead of State with representation of the concerned ministries and agencies.

Program Components

60. Farmers in the mechanized farming areas are heavily dependent onfarm machinery. They obtain seeds locally and use little or no fertilizersor herbicides. Their urgent needs are tractors and spare parts. Farmersin the irrigated areas can increase their food production by applyingfertilizers. Farmers in the traditional sector can reduce post harvestlosses if an adequate supply of jute sacks is available. Seeds are also inshort supply but these will be provided by several other donors to theextent feasible.

61. Farm Machinery (USS5.0 million). Production of the mechanizedfarming schemes has declined in the last three seasons because of limitedrainfall. Farmers have been unable to replace aging machinery because ofrepeated crop failures which have eroded their incomes, even thoughmaintenance capability in the country is adequate as indicated by the factthat the average tractor life in the private sector is more than 10 years.In addition, the shortage of foreign exchange reduced the availability ofmachinery in the local market. About 800 farmers have applied for newtractors through the Agricultural Bank of Sudan (ABS) and its branches in1984 but ARS could only provide about 200 because of lack of foreignexchange. If this situation continues, the area under cultivation will

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decline, sorghum production will be substantially reduced, and the foodshortage will be aggravated. To address this problem, the proposed PRPprovides US$5 million to purchase tractors and spare parts through ARS.

62. Fertilizers (US$8.5 Million). In an attempt to reduce the foodgap in the country, MDA has requested all irrigation schemes to increaseareas under food crop cultivation and to apply fertilizers where possible.The Sudan Gezira Board (SGB) is advancing the use of a high yielding hybridsorghum recently released by the Agricultural Research Corporation (ARC).SGB has produced 200 tons of seeds of this hybrid (Hageen 1) which would beplanted on about 40,000 fd in 1985186. In addition, SGB would plantlocally improved sorghum on about 360,000 fd. About 60,f000 fd of locallyimproved sorghum would be planted at Rahad. This plan, designed to doublefood production under irrigation, would require additional supplies offertilizers. Available fertilizers in the country, or promised by otherdonors, would only be enough for the 85/86 cotton crop. There is an urgentneed for about 80,000 tons of fertilizers for irrigated sorghum, wheat andvegetables. The DRP would provide about US$8.5 million for 45,000 tons offertilizers for use on Gezira (30,000 tons); Rahad (10,000 tons), and 5,000tons for private irrigated areas to be distributed through ABS.

63. Sacecs (US$3.0 million). The shortage of sacks during 1984/85resulted in substantial crop losses throughout the country especially amongsmall farmers in the traditional sector. Farmers were unable to harvest ontime and many faced problems in storage and transport as a result of thisshortage. DRP would provide ABS with US$3.0 million for this component,which is sufficient to procure approximately 15,000 bales of 200 sackseach, enough to store about 300,000 tons of grain produced in the rainfedareas.

64. Potable Water Supplies (US$3.5 Million). The requirements forwater supplies to farmers and their livestock include the needs for (a)rehabilitating existing wells, (b) drilling new wells in areas whereperennial ground water resources are proven, (c) rehabilitating existinghafirs which have either silted up or deteriorated because of broken orclogged inlet structure or lack of appropriate outlet system includingfiltration, and (d) building new hafirs where needed. Because of thedeteriorated conditions of many of the existing wells, their rehabilitationdoes not seem practical and redrilling in the same site may be necessary.

65. The DRP would concentrate mainly on areas which are not coveredby other donors, especially the Eastern Region which has a considerableproduction potential which justifies this investment. Providing permanentwater supplies to this region would allow for the stability of farmingcommunities involved in mechanized rainfed farming.

66. DRP would finance US$3.5 million for the repair of four rigsowned by NWC, material for the drilling of 40 deep wells and renabilitatingan additional 40 wells in 1985/86, appropriate support vehicles, pumps andfilters, equipment and material for wells and hafir rehabilitation to beoperated by the NWC's Eastern Regional Office.

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Program Implementation

67. The Program would be implemented by ABS, SGB, the RahadCorporation and NWC. These institutions are satisfactorily implementingprojects financed by IDA. A program steering committee chaired by theUndersecretary, MOFEP, and comprising representatives of above agencies isbeing established to coordinate and monitor timely procurement anddistribution and submission of withdrawal applications to IDA.

68. ABS would import and make available about 450 tractors andassociated spare parts and about 15,000 bales of jute sacks to mechanizedfarmers and approximately 45,000 tons of fertilizer for distribution toSGB, the Rahad Corporation and to private irrigated farmers. ABS wouldprovide tractors for cash or four-year loans and would make availableagricultural inputs under one year seasonal cropping and harvest loans.All inputs will be priced at full cost calculated at the official rate ofexchange, which is the same rate used for pricing agricultural exports.Both types of loans would include annual charges equivalent to rot lessthan 14 percent of the outstanding loan balance (Schedule 4, para. 2(c),draft Development Credit Agreement). These terms have been reviewed andagreed for IDA financed or administered projects for the Northern Regionand Agricultural Services Projects. Tractor distribution among farmerswill be based on a plan agreed among the Ministry of Finance and EconomicPlanning (MOFEP), the Ministry of Agriculture (MOA), and ABS, which ensuresthat tractors will be provided to farmers cultivating land not conflictingwith forestry or grazing enterprises, and restricted to areas already undercultivation in zones where degradation is considered not to be a risk(Schedule 4, para. 2(b), draft Development Credit Agreement). This planwas reviewed by the Association during negotiations and was found to beacceptable.

69. Financing of tractors and spare parts (US$5 million), jute sacks(US$3 million) and 5,000 tons of fertilizer (US$1 million) would be onlentfrom MOFEP to ABS at 9.6 percent interest and repayment over 10 yearsincluding 3 years grace with the foreign exchange risk borne by theGovernment (Section 3.01(b), draft Development Credit Agreement).Conversion of dollars to Sudanese pounds will be at the official exchangerate at the time the loan is made. Receipts of local currency from thesale of these components, on either cash or credit terms, would remainavailable to ABS for use in its program of seasonal credit to farmers.

70. ABS would be responsible for procurement of about 45,000 MT offertilizer (US$8.5 million) for distribution to SGB of 30,000 MT and RahadCorporation for 10,000 MT. In anticipation of possible delay in receivingfertilizers financed by this program before July 1985, and because sorghumfertilizer should be applied to sorghum during this period, SGB and Rahadwould make necessary arrangements to ensure early availability offertilizer for sorghum from existing stocks and later replenished whenfertilizers under DRP are received. The sale of fertilizer to tenants atGezira and Rahad will be on the basis of full cost pricing, calculated atthe official rate of exchange. Local currency proceeds from the sale offertilizer would be collected by the corporations and paid into a specialaccount established in the Bank of Sudan for this purpose (Schedule 4,

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para. 4(c), draft Development Credit Agreement). These funds would beavailable for financing of development projects included in theGovernment's budget and public investment program (PPPED) (Section 3.03,draft Development Credit Agreement).

71. NWC which is already involved in implementing the water componentunder the Western Savannah Project (IDA Credit No. 718-SU) and the NewHalfa Rehabilitation Project (IDA Credit No. 1022-SU) would be responsiblefor procurement of pumps, engines, and spare parts for drill rigs, andother items listed under the water component. NWC would submit to IDA byJuly 31, 1985, a drilling program in the project area before drilling orrehabilitation work begins, including a detailed description of sitesselected for drilling or rehabilitating existing wells, and a detailedimplementation program including arrangements for reasonable cost recoveryfor reliable operation and maintenance of wells and bafirs financed underthe project by July 31, 1985 (Schedule 4, para. 5, draft Development CreditAgreement). Instead of purchasing new rigs, DRP would assist NUC to repairthe existing rigs and would provide funds for spare parts needed fortheir rehabilitation according to a detailed list to be prepared by NWC andsubmitted to IDA at negotiations. The drilling program should be completedwithin 18 months of project effectiveness, and IDA would monitor itsimplementation and needs through several supervision missions during thisperiod.

Program Cost Estimate and Financing.

72. Total program cost is estimated at $24.9 million equivalent,including duties and taxes of about $1.9 million. The foreign exchangecomponent is estimated at $20.0 million or 87 percent of total programcost, net of duties and taxes, of S23.0 million. Costs are based on April1985 prices, projected to September 1985 levels. Since procurement of allgoods, equipment and vehicles is likely to take place at that time andsince the amount of funds available will determine quantities to bepurchased, contingencies have not been applied to the cost estimates. Adetailed breakdown of costs is given in the Credit and Program Summary.

73. The proposed IDA credit of SDR 20.2 million (US$20 millionequivalent) would finance all foreign costs representing about 87 percentof the total program cost, net of taxes and duties. The Government wouldfinance the local costs of $3.0 million equivalent, plus taxes and duties.Of the proposed IDA credit, the Government would make available about $9.0million to ABS for tractors and spares (US$5.0 million), jute sacks (US$3.0million) and fertilizers (US$1 million). The program would finance US$8.5million equivalent foreign exchange from the Credit proceeds for import ofabout 45,000 m.t. of fertilizers, 5,000 m.t. (US$1.0 million) of whichwould in turn be made available to ARS. Fertilizers made available toGezira and Rahad would be paid for these corporations on a cash basis. Itwould also provide NUC on a grant basis with about US$3.5 millionequivalent foreign exchange for import of spares for drill rig spare partsand other equipment needed for the water supply component.

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Retroactive Financing and PPF

74. ABS has requested that the shortage of tractors in the rainfedareas be urgently addressed. ABS's immediate needs are 450 tractors forpurchase if funds are available. A Project Preparation Facility tPPF) wasapproved for one million US dollars to finance spare parts and the firstshipment of tractors. Also, retroactive financing up to US$2 million forprocurement occurring after the appraisal (April 15, 1985) will bepermitted if the Government can obtain foreign exchange for inputs underthe DRP for procurement of program components in accordance with IDAprocedures.

Procurement and Disbursement

75. All items to be financed by the program are urgently needed.Special procedures would therefore be justified to ensure speedy deliverybut also encourage reasonable competition among suppliers. Fertilizer(US$8.5 million) and jute sacks (US$3.0 million) would be procured throughinternational competitive bidding. An advertisement giving fullspecifications and delivery requirements would be placed in the local pressand would be circulated to embassies of Bank member countries, calling forsealed or telexed replies within 30 days. Bids would quote cost andfreight value in US dollars, valid for 60 days. Specific spare partsneeded to repair rigs and for particular brands of tractors available fromoriginal manufacturers would be purchased directly from manufacturers. Allother goods would be purchased by limited international bidding, whichwould entail obtaining at least three bids from well establishedsuppliers from at least two different countries, represented with servicingagents in Sudan. A procurement plan is given in Annex IV.

76. For any orders exceeding $250,000 in value, which constituteabout 90 percent of the program, full documentation (including list ofbidders, advertisements, invitations to bid, draft tender documents, draftcontracts, bid evaluation and recommendation of contract awards, asapplicable in each case) would be sent to the association for review priorto contract award.

77. IDA would disburse against 100 percent of foreign expendituresfor imported goods, equipment and vehicles and 80 percent for importeditems purchased locally. All disbursements for amounts exceeding $20,000would be fully documented. Reimbursements for contracts for goods andservices valued at less than $20,000 would be made on the basis ofStatements of Expenditure. Disbursement requests from all participantswould be submitted through the MOFE?. Most components would require onlyone procurement package and therefore the disbursement schedule is notcomparable to general IDA disbursement profiles. Disbursements areexpected to be completed by December 31, 1986.

Accounts, Audits and Reporting

78. Program accounts and records would be maintained by ABS, SGB,Rahad and NWC. These accounts would record the acquisition and ultimatedisposition of the goods financed by the Credit. MOFEP will maintain

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centrally integrated program account by each component which would beavailable to IDA on request. The program accounts including Statements ofExpenditures would be audited by independent auditors acceptable to IDA andthen submitted to IDA not later than six months after the end of eachfiscal year during the implementation period. MOFEP, supported by ABSMonitoring and Evaluation Unit, would report on the use and effects of thecredit proceeds. In addition, no later than six months after completion ofthe proposed program, the Government would prepare and furnish to IDA acomplete report on the implementation of the project.

Environmental Impact

79. The most potentially damaging environmental effect could comefrom the mechanized farming of large tracts in semi-arid areas. Previousfarming of these areas has led to removal of virtually all perennialfoliage and exposure to erosion. However, the Government's program tocontrol mechanized farming practices has been partially successf .1 inreducing the damages. Also, the use of farm machinery purchased withcredit proceeds would be restricted to areas already under cultivation inzones where degradation is considered not to be a risk (para. 68).Therefore no environmental damage should result from the mechanized farmingcomponent.

80. The provision of fertilizer and jute sacks should have either aneutral or positive effect on the environment. The provision of watersources could, if installed in unproductive semi-arid areas, lead to soilexhaustion and removal of natural cover, and so provisions have been madeto assure that the NWC avoids installations in such areas (para. 71).

Benefits

81. The benefits resulting from the p. igram are expected to be (a)increased sorghum and wheat production from the application of fertilizersin the irrigated areas, (b) increased sorghum production from the rainfedareas through the provision of tractors and spare parts for farm machineryand jute sacks, and (c) an increase in the number of functional wells andhafirs in the Eastern Region through the provision of pumps, drills andconstruction equipment.

82. While an overall economic rate of return was not calculated dueto the nature of the program, an analysis of the major components indicatesthe following:

(i) The fertilizer component yields approximately a 3.5:1benefit to cost ratio for sorghum using import parityprices.

(ii) The provision of jute grain sacks gives approximately a3.5:1 benefit to cost ratio assuming only a one year use, a5 percent saving in reduced grain losses, and sorghum importparity prices.

- 23 -

(iii) Tractors give a financial rate of return of over 50 percentassuming import parity prices for the first year, and exportparity price for subsequent years, and a yield of 250 kg.per feddan.

No attempt has been made to estimate an economic return for the watercomponent, which would assist in the recovery of agriculture by reducingthe costs incurred through abandonment of villages when water supplies rundry.

83. Beneficiaries would be: (i) approximately 70,000 tenant familiesin the irrigated areas and 20,000 traditional small farmer families, andsmall-scale private irrigators; (ii) approximately 600 commercialmechanized farmers and hired laborers who would be employed by them at alevel of about 45,000 labor years; and indirectly consumers, both in therural and urban areas, who would benefit from a fall in food prices. Also,the program should strengthen ABS by expanding its lending operations andits liquidity during the lending period.

Risks

84. Shortage of fuel for farm machinery and transportation of projectcomponents to the producing areas poses a substantial risk. The appraisalmission found no feasible way to reduce this risk through the addition of afuel component to the project since fuel distribution and use would bediffic.ilt or impossible to control. However, the mission was encouraged bythe recent decision of several major donors to help meet Sudan's immediatefuel requirements which greatly reduces this risk for the coming cropyear. The Government has in the past given priority to the agriculturalsector when fuel is available.

85. There is also a risk in delayed project procurement. However,the GOS has already prepared tender documents for items to be financedunder DRP and procurement would proceed as soon as this program isapproved. Also, since two of the three implementing agencies are familiarwith IDA procurement procedures, this risk seems manageable.

86. There is, of course, a risk. that the rains will again beinadequate. This will not be a major factor in the irrigated areas (i.e.for the fertilizer component) but it would affect the production from therainfed areas. However, the farm machinery and jute sacks would not bewasted since they could be used in the following year.

87. All of these risks seem reasonable in view of the substantialbenefits which would result from successful implementation.

PART V - LEGAL INSTRUMENTS AND AUTHORITY

88. The Draft Development Credit Agreement between the DemocraticRepublic of Sudan and the Association, and the Recomendation of theCommittee provided for in Article V, Section l(d) of the Articles of

- 24 -

Agreement of the Association are being distributed to the ExecutiveDirectors separately.

89. Special features of the project are listed In Section III ofAnnex III of this report.

90. I am satisfied that the proposed credit would comply with theArticles of Agreement of the Association.

PART VI - RECOMMENDATION

91. I recommend that the Executive Directors approve the proposedCredit.

A. W. ClausenPresident

Attachments

Washington, D.C.June 3, 1985

- 25 - AN TTABLE 23 PAt I

SUDmN -SOCIAL INDICATOIS DATA SHITSUIDN REA,hf GROUP AEAG) La-

MIOST CMI4OSSCEnt ESTIKAT) lbREET tllODLZ DIlla MllONK Illll

inotk 1970,t zsTrmAutk AFRICA S. OF Sam N. AFRICA A MI aM

AMA (T!lS0 SQ. M)TOTAL 2505.6 2505.6 2505.8AGRICULTURAL 667.0 671.0 614.5

ar nm carn (Us$) 140.0 160.0 440.0 1112.9 1149.6

(rnoCl Ol OXL o UIVAEINIzr) 40.0 118.0 70.0 529.0 622.1

POMtM AND MLST1ESTICPOPULATION,IJD-YEAX (THOUSANDS) 11165.0 13859.0 20167.0URBAN POPULATION (S OP TOTAL) 10.3 16.4 22.5 29.7 48.2

PDPOLATIOX PnojiornsPOPULATIN IN TUR 2000 (HILL) 33.9STATIONer POPUlATION (HIL) 112.2POPULATIONH GKENfI 1.6

POPULATION ovumPER SQ. 1s. 4.5 5.5 7.8 55.8 36.3PER SQ. K. AGIL. LAND 16.7 20.5 28.6 111.5 461.7

POPULATION ACE STRUCTME (I)0-14 YRS 43.7 63.7 44.1 45.6 43.6

15-64 Y1 53.Z 53.4 52.5 51.7 33.165 AND ABOVE 3_1 2.9 2.8 2.9 3.3

POPUlATIN CRhWII RATE CZ)ToTAL 1.9 2.2 3.1 2.8 2.6URBAN 6.9 6.8 5.8 5.2 4.5

CRD BIMR RATE (PER TWOS) 47.0 47.0 45.4 47.0 40.4.CR D DWAH RATE (iPEn 1OS) 25.4 22.1 17.8 15.2 11.5GROSS REPRODUCTIOC RATE 3.3 3.3 3.2 3.2 2.6

FAMILY PLANNDCACCEPTORS. ANNUAL (CT11S) ..USD5 (S OF ARIED ) .. .. 5.0 .d .. 22.2

FOD AMD XRrZINDEX OF FOOD PROD. PElt CAPITA(1969-71-100) 92.0 100.0 67.0 91.6 97.3

PER CAPtTA suwrs orCALORIES CZ OF REQUIR_Dr.S) 84.0 91.0 '99.0 9L.2 110.1PREIS (CRAIS PER DAT) 65.0 66.0 68.0 56.7 70.1

OF USIC ANDIJ Al18 PULSE 24.0 22.0 21.0 / 17.0 17.8

CRUD (ACES 1-4) DEATH RAZE 40.1 32.4 23.0 18.7 14.6

LIFE EXPECT. AT BIRTH (YEANS) 38.7 61.9 47.0 51.7 57.5DIFANT HOfRf. RATE (Pi THOS) 168.0 150.4 119.1 10Z.7 101.5

ACCESS TO SAF WATER C(poP)TOTAL .. 19.0 66.0 f 35.6 59.7UJ .. 61.0 49.0 T71 5i 64.5RURAL _. 13.0 45.0 rf 27.3 38.4

ACCESS TO XREML DISPOSAL(2 OF POPULATION)

TOTAL .. 16.0 22.0 ..one .. .. . ..

RURAL

POPULION1 PEP PHYSICIN 33230.0 14070.0 8930.0 11946.3 £345.1POP. PER NURSING PERSON 3010.0 /b 1720.0 1430.0 2246.9 131.1POP. PER H0SPITAL BED

roT S70.0 /: 920.0 ft 1050.0 A 986.9 632.9URBAU 130.0 7Wa 1 190.0 7 370.0 K 36B.7 5s5.5RLRAL 437007St 5130.0 if 1870.0 / 4012.1 2513.5

ADMISSIONS PER HOSPITAL BED .. .. .. .. 26.2

AVERAGE SIZE or ROUSEILDTOAL .. 5.1URBAN .. 5.7 .RURAL .. ..

AVERASE NO. OF PnsOuu/xoasTOTAL .. ..URUA .. L. .RURAL .. .. . ..

ACCESS TO ELEC. (Z Or SUEINS)TOAL .. .. .. .. 46.2URAN .. Z6.4 Li .. .. 77.7RURAL .. .. .. .. 16.1

- 26 - ANNEX IT A C L C3 IPAGE 2

SUDAN - SOCIAL DIDICATORS DATA SlEETSUDAN REFERENCE GROUPS (ERIEZTED AVERAGES) /a

mOST (MOST RECENT STIMATE) /bRECENT MIDDLE INCOIE M1DDL INCOE

1960& IL97tA zFSIAtlEL AFRICA S. OF SARUA n. ARCA & MD EST

ADJUSTED ENROLIMENT RATIOSPIDLMRY: TOTAL 25.0 38.0 52.0 91.0 8S.3

KALE 35.0 46.0 61.0 90.5 102.5EAlS 14.0 29.0 43.0 73.6 73.6

SECONDARY: TOTAL 3.0 7.0 18.0 17.4 43.0KALU 5.0 10.0 20.0 23.7 52.3FEMALE 1.0 4.0 15.0 14.8 33.0

VOCATIONAL (C OF SECO ) 3.4 1-4 /k 4.0 /k.l 5.3 10.3

PUPIL-TzACHzU RATIOPRIM 41.0 47.0 33.0 38.6 30.3SECDNDAT 20.0 17.0 23.0 24.3 23.1

ADULT LTERACY RAMT (Z) 13.1 14.7 32.0 35.6 43.5

PASSENGER CARS/TOUJSAND POP 1.4 2.0 -- 20.7 17.8RADIO RECEIVERS/ITBOUSAND POP 17.0 /a 80.3 70.2 100.8 138.8TV RECVERS/T1OUSAND POP 0.8 7n 3.2 5.5 18.5 46.1NEUSPAPER (-DAILY CENER1AL

INTEREST-) CRCULATIONPER THOUSAND POPULATION 4.4 9.2 1.0 |c 17. Z 31.2

CINEMtA ANNUAL ATTENDANCE/CAPITA 0.9 0.5 7F 0.3 1.7

LAB O FCETOTAL LABOR FORCE (TIOUS) 3701.0 4547.0 6311.0

FEMALE (PERCENT) 9.6 10.2 11.0 33.8 10.8ACRICULTURE (PERCENT) 86.0 82.0 78.0 57.1 42.4INOUSTRY (PERCENT) 6.0 8.0 10.0 17.4 27.9

PARTICIPATION RATE (PERCENT)TOTAL 33.2 3Z.8 31.3 36.3 26.2mALE 59.3 58.2 54.9 47.6 46.4FEKALE 6.4 6.8 7.0 25.1 5.8

ECONOMIC DEPENDENCE RATIO 1.4 1.4 1.5 1.4 1.8

IUM UDISIDUIMOUPERCENT OF PRIVATE DNGERECEI19 BY

HIGHEST 5E OF HOUSEHOLDS 20.9 In ONICSEST 20S OF HOUSEHDLDS 50. 17 j o

49.

2IP _

LOWEST 20S OF BOUSEWOLDS 5.0 /u.o 5. I7jLOWEST 4CZ OF HOUSEHOLDS 13.9 /n.o 14.5

PDZw TAI GROESTIED ABSOLUTE POVERTY INCOD EIE7EL (US$ PER CAPITA)

URBAN 137.0 jq 525.3 274.8RURAL .. 80. 0 249.0 177.2

ESTIATED RELATIVE POVERTY INCOMELEVEL (USs PER CAPrTA)

URBAN .. 115 0 /q 477.4 402.6RIJAL * * 100.0 186.0 284.9

ESTIMATED POP. BELOW AISOLUTEPOVERTY INCOME LEVEL (R)

URANMRURAL . . .. 5

NOr AVAIIBAENOT APPLICABLE

N O T E S

/A The group aeraes for each indicator are populatiom-weighted aritbetic sens. Coverage of councries among theiodicators depends n availabiliry of date and Is not uniform.

lb Unlear otherwise noted. Data for 1960 refer to ny yer betwee 1959 and 1961; -Data for 1970( betveen 1969 and1971; and data for MHoet Recent Eatiate- between 1980 and 1982.

Pc 1979; /d Age. 15-50 year. North only; /e 1977; /f 1976; /.L 1975; /h 1962; / Coverment hospital eatablisheents;Li 1966; fit Beginnang 1970. the duration of general econdary education va reduced from 8 to 6 years; /I Includaprogram oT5 training centers operated by Department of Labor and 17 abort-tern ceanter operated by Ministry ofYouth and Sport; /. 1963; /n 1964; 1o O.durman urban; p 1967-68; Iq 1978.

JME. 1984

-27 -AN~NEX IPage 3

14-.,maes b es-d e...e.~as1 is - .S selestla - e1eis 1I. Do1.1 .8. -Am'.ek. 5159 Sde _-AA - IaCsleS

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~~9* lIst.... .1.58.1 ~ ~ ~ ~ ~ ~ 9"-m-= . . d-P..158 d-1 .d9 5.4. .5- -eotvS- sei.e.4aese _.Oq .n.M- .4te -. 91-. .ve- tIS`Sd -. -. 9.41est .A *1 LLL-etel iseel.) -

M9.1 - - 1 ~W d-- CII45.. eeIs1e We Le.. -ses - 8L..l A *14- by t- .1 8c-a,.,,vl-1e8..5 .ese..lec .4tws1 I-svlpae d .. 5-..e.5.4 Pe.t.. 4de...W bpt5-.61 Or s g."

I,.se~*...r.* ehs el ne... 494...- .. 81 1.5.. 980 eee9 Mt 185..._ p t1.L .

-e . s.. =CI.s -ev. 51.pIe elsI Cpkll. t.et..l.4..484-1..

CS5.41M Miy . ca.le, -. 8t. -1491 1. 15 5C-l.13 .e859. p.1CeCe. - ttslS-- 85 eet -h ICe P8"Lt .8

5940. left. -A 1112 des. be. (.05 - ~.sislka heesh4leal P...54 pft48dp.Lts ..eOdSOL- hc - I-.l.4. 1-vd M1ls.. hn.et 1.51.4 S-418 ted

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pm31 L.d891 -t-leelal1.1 8.le -s.dZe5u.

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teel.1I..Cc. -Is"bst.etp St 1.l -ee *- ceg. e-we-.I. -CIT..e'CI et.1S -e tas 1584 4. 0I

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... sse 894.1 dSs. e.tl..t.s"h-`-ve-l.- .rsr . eaSe-t.. ei....8dSS,:.L= rWe 15.11. f1.0it - Childserb 41I1.4-h SC S 1.515.( 5 .-

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.. 1mmi5 IalUtsIn-

- 28.-

ANNEX I

Fage 4

SUDAN - COUNTMY DATA

ECONONIC INDICATORS

ANNUAL AVERAGE RA7Z OF GROWTHGROSS DOHESTIC PRODUCT IN 1983/84 (Z, Conotant Prices)

USS kin. S 1974/75-1978/79 1978/79-1983/84

GDP at Market Prices 6288.0 100.0 3.6 1.7Gross Doaestic Investmnt 870.7 13.8 0.6 -0.4Gross National Saving 224.3 3.6 13.1 -10.0Current Account Balance -646.0 10.3 0.7 4.1Exports of Goods, IFS 877.0 13.9 0.7 4.1Imports of Goods, NFS 1668.0 26.5 0.2 4.0

OUTPUT 1/, L^BOR FORCE 2| ANDPRODUCTIVITY IN 1983/84

Value Added Labor Force V.A. Per WorkerUSS Kin. Z Hln. S USS Z (of average)

Agriculture 1684.4 29.7 4.92 78.0 342 23.1Industry 931.7 16.5 0.63 10.0 1479 164.7Services 3051.4 53.8 0.76 12.0 4015 447.1

Total 5667.5 100.0 6.31 100.0 898 100.0

GOVERNMENT FINACE

Central Government - 1983/84(LS. Kin.) Z Of GDP zl

Current Receipts 1469 14.7Current Expenditure 1300 13.0Current Surplus 169 1.7Capital Expenditures 483 4.8Unallocated Expenditures 3/ 366 3.7

MONEY, CREDIT AND PRICES 79/80 80/81 81/82 82/83 83/84(million LSd outstanding end period)

Money Supply 1047.5 1445.2 1899.9 2605.0 3151.8Bank Credit to Central Government (net) 719.0 914.5 848.7 677.2 775.4Bank Credit to Private Sector and

Parastatals 814.3 1118.6 1560.9 2229.6 2585.7

(Percentages)

Ainnfulal percentage changes in:Consumr Price Index 4/ 25.9 24.3 26.8 30.6 28.1Bank Credlt to Central Government 9.0 27.2 -7.2 20.2 14.5Bank Credit to Private Sector

and Parastatals 24.7 37.4 39.5 42.8 16.0

1/ Factor Costs.2L labor force estimates are based on EPD's social Indicators Data Sheet.

In/ Icludes some capital expenditures by other public entities.4/ Calendar Year.

Nay 28, 1985

- 29 -ANNIMX IPage 5

SUDAN - COUNTRY DATA

TRADE BALANCE AND CAPITAL FLOWS

BALANCE OF P&TMENTS ESTIM'ETS

1980/61 1961/82 198Z/83 1983/84 MERCHANDISE EXPORTS (AVERAGE 1981/82-1983/84)(ilow. US$)

US$ KID. ZExports Goods & NFS 748 627 753 877Imports Goods & NFS 1828 2034 1786 1668 Cotton 194.0 33.5Resource Gap -1080 -1407 -1033 -791 Sorghu 59.4 10.3Interest, lLT Debt -105 -190 -191 -215 Croundnuts 26.7 4.6Other Factor Payments (net) -1 -5 -20 -20 Cm Arabic 51.2 8.8Private Transfers 305 350 415 350 Seam 53.0 9.2Current Balance -881 -1252 -829 -646 Other 194.7 33.6

Public Grants 122 174 462 336 Total 579.0 100.0Direct Inveitment 35 40 60 70Public HILT Loans, disb. 49g 685 219 194 EXTERNAL DEBT. DECEMER 31, 1983Public HLT Losae, asort. 86 97 58 16Total Public Net 413 S88 161 178 US$ 31n.Net Credit, DM 290 SO L22 -Capital Flows (Icl. errors Public Debt, DOD, lLT 5780.6 j/

and omlsslons) -199 -118 -196 203Change In Net Reserves DEBT SERVICE RATIO TOR 19S3/84

(- ladicates Increase) 220 518 220 -141 3/ Z

Public Debt, Incl. guaranteed 26.3RATE OF EXCHANGE Non-Gruranteed Private DebtExchange Rate J/

Official Rate: Lsd 1.00 - US$ 0.40USS 1.00 - Lad 2.50

Commercial Dank Lad 1.00 - US$ 0.30Floating Rate: US$ 1.00 - Lad 3.30

IBRD/IDA LZNDINC. (Dec. 31, 1983) (Million US$)IBRD IDA

Outstanding and Disbursed '.. 393.9UndLabursed 2.3 244.1Outstanding Lncl. Undisburned 4W4 638.0

Not available.

1/ Total DOD (Including MF, outstanding arrears, and military debt) ie, honever.estimated to US$8.1 biflion as of December 31, 1983.

2/ Exchange rate refers to May. 1985. For exchange ratehistory prior to that, refer to table 6.6 of the Statistical Annex.

3/ In 1983/84 the net forelgn reserves situation ume extremely tight;the reported increase may have resulted from computing inaccuraciesIn the sbort-tern capital flows. EA2NE

May 28, 1985

- 30 -

ANNEX IIPage=1

A. STATEMENT OF BANR LOANS AND IDA CREDITS - SUDAN(as of March 31, 1985

Amount (US$ Million)(Net of Cancellations)

Loan/ lTndis-Credit No. Year Borrower Purpose Bank IDA bursed

Seven Loans and seventeen Credits fully disbursed 139.0 270.1

Credit 782 1978 Sudan Livestock Marketing 25.0 10.1Credit 804 1978 Sudan Mechanized Farming III 16.0 5.3Credit 834 1978 Sudan Agricultural Research 15.0 5.5Credit 882 1979 Sudan Highway II 41.0 0.1Credit 904 1979 Sudan So. Region Agriculttre 15.0 5.7Credit 1006 1980 Sudan Third Power 65.0 23.1Credit 1022 1980 Sudan New Halfa Rehabilitation 40.0 26.5Credit 1118 11 1981 Sudan Blue Nile Pump Rehab. 32.0 23.4Credit 1119 71 1981 Sudan White Wvile Pump Rehab. 35.0 24.7Credit 1153 7T 1981 Sudan Second Teeb. Assistance 6.0 3.3Credit 1181 71 1981 Sudan Western Savannah 13.0 1.4Credit 1201 /1 1982 Sudan Agricultural Services 18.0 12.9Credit 1233 11 1982 Sudan Second Port 25.0 3.9Credit 1388 71 1983 Sudan Gezira Rehabilitation 80.0 80.0Credit 1389 71- 1983 Sudan Agric. Rehab. Program II 50.0 0.7Credit FOI1*7T 1984 Sudan Third Education Project 10.0 9.0Credit 1451 T7 1984 Sudan Third Education Project 5.4 4.2Credit 1450 7T 1984 Sudan Third Highway Project 16.0 15.4Credit 1506 717 1984 Sudan **Sugar Rehab. Project 60.0 60.0Credit 1513 71 1984 Sudan Petroleum T.A. Project 12.0 11.5Credit 1525 71 1984 Sudan **Stock Route Project 5.5 5.5

Total 139.0 855.0 332.2

of which repaid 94.8 5.5

Total now outstanding 44.2 849.5

Amount sold 5.8 8.3of which repaid 5.8 - 8.3 -

Total held by Bank & IDA 44.2 849.5

Totai undisbursed Nil 332.2 332.2

/1 IDA 6 Credits, US dollar equivalent of SDRs at time of negotiations.(Note: SDR amounts of these 13 credits are: SDR 25.1 million, SDR 27.5million, SDR 4.9 million, SDR 11.2 million, SDR 15.7 million, SDR 21.5million, SDR 74.2 million, SDR 46.1 million, SUR 9.6 million, SDR 5.2million, SDR 15.5 million, SDR 56.4 million and SDR 11.6 million,respectively.)

** Not yet effective.*11 Special Fund Credit

_ 31 -

ANNEX IIPage 2 of 2

B. STATEMENT OF IFC INVESTMENTS(as of March 31, 1985)

Fiscal (Amount in US$ million)Year Obligor Loan Equity Total

1964 and Khartoum Spinning & Weaving Co.1972 Textiles 1.9 0.3 2.2

1976 Cotton Textile Mills 8.7 1.3 10.01978 Seleit Food Production Ltd. 11.1 1.1 12.21978 Gezira/Managil Textile Co. Ltd. 6.7 1.4 8.11980 Sudan Cement Company - 0.2 0.21982 White Nile Petroleum Co. Ltd. - 0.3 0.3

Total gross commitments 28.4 4.6 33.0

Less cancellations, terminationsrepayments and sales 6.9 0.6 7.5

Total commitments now held by IFC 21.5 4.0 25.5

Total undisbursed by IFC 1.9 0.2 2.1

_ 32 -

ANME= IIIPage 1

SUDAN

DROUGHT RECOVERY PROGRAM

Supplementary Data Sheet

Section I - Timetable of Key Events

(a) Time taken to prepare project: 3 months(b) Preparation by: IDA/Government(c) Appraisal Mission: March 26 - April 17, 1985(d) Planned date of Credit

Effectiveness: July 15, 1985

Section II - Special IDA Implementation Actions

A PPF for US$1 million has been approved.

Section III - Special Conditions:

(a) Government would submit for IDA review by December31, 1985 a draft report and an action program forthe implementation of report's recommendation ofthe Rainfed Study representing the work of the fourTask Forces established for this purpose (para.56);

(b) ABS would provide four-year loans for tractordistribution and one-year seasonal cropping andharvest loan with annual charges equivalent to notless than 14 percent of the outstanding loanbalance (para. 68);

(c) The GOS would ensure that tractors provided tofarmers under the Credit would only be used tocultivate land which does not conflict withforestry or grazing enterprises, and would berestricted to areas already under cultivation inzones where degradation is considered not to be arisk (para. 68);

(d) On-lending to ABS would be with charges equivalentto 9.6 percent interest and repayment of over 10years including 3 years grace (para. 69);

- 33 -

ANNEX IIIPage 2

(e) Local currency proceeds from the sale of fertilizerto tenants at Gezira and Rahad vould be collectedby the corporations and paid into a special account(para. 70);

(f) NWC would submit to the Association by July 31,1985, a drilling program in the project area(para. 71); and

(g) NWC would provide a detailed program by July 31,1985, including arrangements for reasonable costrecovery for reliable operation and maintenance ofwells and hafirs (para. 71).

- 34 -

ANNEX IV

SUDAN

DROUGHT RECOVERY .PROGRAM

Procurement Plan(US$ million)

Procurement Method TotalProject Element ICB LIB Otherl/ Cost

1. Tractors 4.6 - 4.6(4.0) (4.0)

2. Tractors (spares) - 0.6 0.6 1.2(0.5) (0.5) (1.0)

3. Jute Sacks 3.4 - - 3.4(3.0) (3.0)

4. Fertilizers 11.6 - - 11.6(8.5) (8.5)

5. Rehabilitation of rigs - - 1.3 1.3(1.1) (1.1)

6. Ancillary Equipment - 2.8 - 2.8Vehicles and Materialsfor Water Supply (2.4) (2.4)

Total 15.0 8.0 1.9 24.9(11.5) (6.9) (1.6) (20.0)

Figures without parenthesis show total cost.Figures in parenthesis show costs financed by IDA.

1/ Represent purchases to be made from original equipment manufacturersfor specific brand of equipment.

- 35 -

ANNEX V

DUGT REOUWE PGAM4

Procaremerit Scbedule

SdeflgWater

S. NO. Activity Tractors Jute Sacs FertLzer

1. Prepara of s f April-2nd wek April-2nd week Aprl-4th wk April-4th weecand teoier documet axdShdssiOn to m1

2. MA, revie and aproval April-4th week April 20-30 l4y-2nd meek fty-2nd wce

3. issie of tendler nvitation 1Ma-1st week lI 1 My-2rx ek My-2nd wc

4. Tender c:lgE Jue-Ist week June 5 June-2nd meek Jie-2nd week

5. Tax1er opnng evaluation Jam-3rd week June 6-10 June- 3rd week June-4th weekan ! recndaticas to Mk

6. M& revim aind aroal July-lst.ueek Jue 10-25 July-lst week Jul3-2nd week

7. Award an! signing of ctaxt July-3-t week June 25-Jily 2 Juiy-2nd we July-3rd week

8. Opeing of latter -of cdit July-2nd %;eek July 2-15 Julr-2od meek July-4th week

9. Iss of qualified agreemnt July-4th week Juy 16-25 Aug.-Ist week Aug.-2nd weeto reimburse by IDA

10. pment anad delvery Aug.-4th wee July 26-ig. 31 Aug.-3rd wek Sept.-2nd weekto Sept.-1st 'wek

- 36 -

ARM VI

THE DEMOCRATIC REPUBLIC OF THE SUDAN

Minsty of Fiance and Eonmxde Planng

(Planning - )

P.O. Box.2092. KHARTOUM h,% _ .j.r

Cable. (EMAR) l(js1b) L1 ^;;

nxx:324 : r

Kartoum: 16th-. ... 1 25th-. R!4" 11uC0 I.

Ref ...... ............ ____,,

InteTnatio.w Devedolep t

X818 t. Street N. V.,Vashington D. C- 2133,U. S. A.

Attached herevithl pease fizd St&tommt ef X _6 fer %gaFed Aprculture prepared by <MiStzy et Ag'lcultmM.

Sincerely ye-u

IPerAfde Seeetary of 3 danmag,Mnisitry of Fiziane and &amiulc Pla=1Mn.

- 37 _

ANNEX VIPage 2

Statement of Strategy for Rainfed Agriculture

Prepared by the Ministry of Agriculture

1. The Government of Sudan is committed to the development ofRainfed Agriculture through both the large-scale mechanized sub-sector andthe traditional rainfed sub-sector. The objectives are to increaseproduction, enhance food security and reduce environmental degradation.The means to achieving these objectives will be through problem-solvingresearch, extension of appropriate technology packages, appropriate pricingand taxation policies, provision of credit and support services, morefocused institutions, clarified institutional responsibilities andinvestment in infrastructure. Production will be througn the privatesector with a strong emphasis on bringing the traditional farmer into thedevelopment process.

2. The programs and actions to achieve these objectives will beimplemented within the following framework.

3. Increased productivity, which in the past has come largely fromhorizontal expansion will now come increasingly from vertical expansion,through introduction and supply of improved seeds, suitable toenviro3mental conditions of different areas and through supply of adequateinputs and essential agricultural services. Certain new areas will beopened up to meet the requirements for reallocation of farmers frommarginal lands to new areas with high production potentials and whereenvironmental degradation can be prevented.

4. Efforts to increase productivity will be closely associated witnefforts to improve crop handling and marketing channels, increase storagefacilities and build up an expanded system of infrastructure.

5. Efforts to reduce environmental degradation and to conserve andmaintain natural resources will receive high priority: it is now wellacknowledged by the government that deterioration of natural resources,soil degradation and desertification problems arz not attributed to droughtincidents but mainly to general land misuse. Agricultural development mustbe consistent and in line with the actual capabilities of the land. Inthia respect, the following efforts deserve attention.

(a) FAO/GOS are currently engaged in resource inventory of the entiresavanna belt; the product will be an up-to-date resource basemaps involving a detailed land capability classification mapswhich will be used in the formulation of a national land use planfor future agricultural development.

(b) The government has formulated a comprehe-sive plan for combatingdrought effects and desert'Lfication. This is an inter-disciplinary program involving agriculture, soil, water, rangemanagement, animal production, forestry, hydrology, wildlife,ecology, sociology, and land classification. In the program, itis acknowledged that restoration of degraded ecosystems is not

- 38 -

ANNEX VIPage 3

always an easy task. Genuine public support and activeinvolvement of the target groups and resource users are essentialcomponents of any successful programs.

(c) A Supreme Council for natural resources has been created andentrusted the role of overall policy formulation for naturalresources that will ensure their appropriate utilization,conservation and maintenance; the council will have the power andauthority to enforce the measures taken to achieve its policyobjectives.

(d) Future efforts to safeguard against environmental degradationwill include introduction of appropriate farm machinery andimplements and of appropriate rotation system.

6. Agricultural credit provided through the Agricultural Bank ofSudan and other financial institutions will be a powerful instrument todirect and assure the implementation of the recommended policies for therainfed sector. In particular, agricultural credit will be used totransform and modernize the traditional sector and to bring the smallfarmer into the development process and to contain the undemarcatedmechanized rainfed areas and prevent crop production in the marginal areas.

7. For the formulation and implement- ion of a consistent andintegrated national policy for the natural resources, it is hoped that theprograms and plans of the National Water Corporation for rural water supplywill be coordinated with the Ministry of Agriculture in order to discouragesettlements and agricultural activities in marginal areas with potentialsfor environmental degradation.

S. To monitor the performance of the agricultural sector duringperiods of weather uncertainty, and to ensure a stable and regular flow offood supply to the country, the Ministry of Agriculture has approached FAOto introduce an early warning system that would increase the capabilitiesof the Ministry to formulate appropriae policies to counter the effects offluctuations and/or failures in crop productions.

9. In order to redirect the incentives and support for a newinitiative on rainfed agriculture, the Government has recently establishedfour task forces supported by IDA financing:

(i) a Pricing, Marketing and Incentives Task Force;(ii) a Technology Task Force;(iii) a Land Tenure Task Force; and(iv) an Organization, Institutions, Finance and Credit Task Force.

These Task Forces will all be commencing work before the end of April 1985and will prepare reports for presentation to the Government during thesecond half of 1985. Particular issues for attention will be: mechanizedfarming leasehold fees, improved technologies for mechanized farming, thelevel of charges for credit, the appropriate balance of investments betweenhigher and lower rainfall areas, the clarification of central versus

- 39 -

ANNEX VIPage 4

regional responsibilities for land subject to degradation, and theappropriate strategies for increasing the incomes of lower incometraditional farmers.

10. The Government will discuss the findings of these Task Forceswith IDA within three months of the completion of the reports and will thenoutline a series of steps for the implementation of each of the acceptedrecommendations. The Task Forces vou;d not only make specificrecommendations but would indicate a rime-bound sequence of administrativeand political steps to reach the recommended positions.

IBRD 18959

........... 111111

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