Bangladesh: Current Economic Situation and Review of the ...€¦ · BFIR - Balancing, Modernization, and Rehabilitation B1TF - Bangladesh Machine Tools Factory BPC - Bangladesh Petroleum

FILE COP-YReport No. 3309-BD

Bangladesh: Current Economic Situationand Review of the Second Plan(In Three Volumes) I-u)

Volume II: Sectoral Objectives and Strategies FILE CQPFebruary 23, 1981

South Asia Programs Department

FOR OFFICIAL USE ONLY

Document of the World Bank

This document has a restricted distribution and may be used by recipientsonly in the performance of their official duties. Its contents may not otherwisebe disclosed without World Bank authorization.

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CURRENCY EQUIVALENTS

Since August 13, 1979, the Bangladesh Taka (Tk) has been fixed withreference to a basket of currencies of major trading partners, with the PoundSterling as intervention currency; consequently the Taka-Dollar rate is subjectto change. In the twelve-months period from July 1979 through June 1980, thisrate fluctuated between Tk 14.61 and 16.27 per US Dollar. On October 13, 1980,the Taka was officially re-valued at Tk 38.45 to the Pound Sterling (equivalentto Tk 16 per US Dollar). Also at that time, the Government narrowed themargin within which the exchange rate in terms of the Pound Sterling will bemaintained from 3.5% on either side to only 1% on the up-side and 0% on thedown-side. Following an appreciation of the Taka vis-a-vis the referencebasket, the exchange rate was again adjusted on October 27, 1980, to Tk 38.92per Pound Sterling.

Average exchange rates (in terms of Taka per US Dollar) for recentyears are shown in the "Country Data" summary in the front of this report.The average exchange rate for FY81 has been assumed at Tk 16 = US$1. TheSecond Five-Year Plan implicitly assumes this same rate for the period FY81-85.

WEIGHTS AND MEASURES

1 acre (ac) = 0.405 hectares1 seer (sr) = 16 chhatak = 2.057 pounds = 0.933 kilograms1 maund (md) = 40 seers = 82.286 pounds = 37.326 kilograms1 (long) ton = 2240 pounds = 1016.04 kilograms = 27.22 maunds1 cusec = 1 cubic foot per second = 0.0283 cubic meters per second

ADMINISTRATIVE STRUCTURE

Below the Central Government there are five administrative tiers.From the top down these are: Division (4), District (20), Subdivision (71),Thana (about 475) and Union (about 6,500). Each union comprises 10 to 12villages.

FISCAL YEAR

The Bangladesh Fiscal Year runs from July 1 to June 30.

The mission which prepared this report visited Bangladesh in September/October1980. The mission's members were: Messrs. Robert Armstrong (Chief), Armandvan Nimmen, Om Nijhawan, Gotz Schreiber, Liaquat Ahamed, Leslie Abbie, DirkWolfson and Ms. Vidya Shetty. Contributions to the report were also made byMessrs. David Pearce, Richard Cambridge, Ali Ezzati and Syed Nizamuddin.

FOR OFFICIAL USE ONLY

BANGLADESH

CURRENT ECONOMIC SITUATION AND REVIEW OF THE SECOND PLAN

VOLUME II: SECTORAL OBJECTIVES AND STRATEGIES

TABLE OF CONTENTS

Page No.

CHAPTER 8. AGRICULTURE ............................................ ' 1

Introduction .. 1........................... Overall Objectives and Strategy ....................... 1The SFYP Investment Program . . 5The Medium-Term Foodgrain Production Plan (MTFPP) ...... 6Input Targets and Requirements ......................... 8The MTFPP Production Framework ......................... 11Non-Foodgrain Output Targets and Constraints ........... 15Key Policy Issues . . ....................... . 19

CHAPTER 9. IITDUSTRY .............. ..................................... 26

Introduction ................................... 26Sectoral Objectives and Targets . . 29Public Sector I nvestment Program .. 31Appraisal of the Public Sector Investment Program .. 31Policies Towards the Public Sector ....................... 34Export Policies ............................. *........................... 35The Strategy for Small-scale and Cottage Industry .. 36

CHAPTER 10. ENERGY ..... .. .......... .. . 40

Introduction ...................... .................................... 40The Power Sector: Background ........................... 43SFYP Objectives and Investment Program for the PowerSector ................................................ 44

The Oil and Cas Sector: Background . .......... 46SFYP Objectives and Strategy for the HydrocarbonSector ....................................... .... ..... 47

This document has a restricted distribution and may be used by recipients only in the performance oftheir official duties. Its contents may not otherwise be disclosed without World Bank authorization.

CHAPTER 11. POPULATION CONTROL AND FAMILY PLAtNIING ................. 51

Background ............................................. 51Plan Objectives and Targets . . . 53Implementation Modalities .............................. 54Feasibility and Implementation Issues-----.-*-*.. ....... 55

CHAPTER 12. EDUCATION..,......... ....... ..... -.-.. 58

Bagkground .,........ . ..- k.- * * *. * * * * * * * * * * * * 58Educational Pbjectives and Strategy of the SFYP ........ 60Feasibility of the Educationka Stra tegyl p ....... 61

Lis-t of Text Tables Page No.

Chapter 8

8.1 Agricultural Output Targets ................................. 38.2 SFYP Investment Program for Agriculture ..................... 48.3 M4ajor Physical Input Targets of the SFYP and MTFPP .......... 98.4 Framework for the Medium-Term Food Production Plan .......... 11

Chapter 9

9.1 SFYP Allocations for Industry .. 309.2 Patterns of Public Sector Investment Allocations ............ 32

Chapter 1010.1 Pattern of Energy Consumption .. 42

10.2 SFYP Allocations in the Hydrocarbon Sector .................. 48

Chapter 11

11.1 Family Planning Service Delivery ........................... . 5211.2 Targets Contraceptive Prevalence Ratios, FY81-FY85 .......... 5311.3 New Family Planning Acceptors by lIethods, FY81-FY85 ......... 54

Chapter 12

12.1 Distribution of Educational Expenditure ..................... 6012.2 SFYP Enrollment Targets . .................................... 61

LIST OF TELMSS, ACRONYMS AND ABYQUVIATJIO:S US1.)

ACRE - Area Covcrage Rural ElectrificationADB - Asian Development Bank

ADP - Annual Development ProgramAS - Anmonium SulfateBADC - Bangladesh Agricultural Development CorporationBBS - Bangladesh Bureau of StatisticsBFDC - Bangladesh Fisheries Developm.ient CorporationBIDS - Bangladesh Institute of Development StudiesBJC - Bangladesh Jute CorporationBJEC - Bangladesh Jute Export CorporaLionBJ1C - Bangladesh Jute Mills CorporationBJMtC - Bangladeslh Jute 'Marketing CorporationBJPSC - Bangladesh Jute Price Stabilization CorporationBJTC - Bangladesh Jute Trading CorporationBKB - Bangladesh Krishi Bank

BFIR - Balancing, Modernization, and RehabilitationB1TF - Bangladesh Machine Tools FactoryBPC - Bangladesh Petroleum CorporationBPDB - Bangladesh Power Developm2nt BoardBRTC - Bangladesh Road Trarnsport CorporationBSB - Bangladesh Shilpa Bank

BSCIC - Bangladesh Small and Cottage Industries CorporationBSRS - Bangladesh Shilpa Rin SangshtaBTMC - Bangladesh Textile Mills CorporationBWDB - Bangladesh Water Developument BoardCBR - Crude Birth Rate

CDR - Crude Death Rate

COL - Cost-of-Livingcu. ft. - cubic foot (feet)

cusec - cubic feet per secondDAP - Di-Ammonium PhosphateDRC - Domestic Resource Cost

DTW - Deep TubewellEEC - European Economic CommunityEER - Effective Exchange RateEES - Export Earners' SchemeEFF - Extended Fund Facility

ERP - Effective Rate of ProtectionFAO - Food and Agricultural OrganizationFFYP - First Five-Year Plan

FPMU - Food Policy Monitoring UnitFWC - Family Welfare Center

FY - Fiscal YearGDP - Gross Domestic Product

GOB - Government of BangladeshGNP - Gross National Product

GVA - Gross Value Added

HES - Household Expenditure SurveyHP - Hyper-PhosphateHTW - Iland Tubewell.HYV - High-Yielding Variety

lDA - International Developmzent AssociationIFAD - International Fund for Agricu].LtuLal Development

IJCS - Intensive Jute Cultivation SchemeILO - International Labor OrganizationIMF - International Monctary Funid

LIST OF TERMS, ACRONYMS AND ABBREVIATION4S USED (cont'd)

IRDP - Integrated Rural Developm:ent PrograrnIRRI - International Rice Research InstituteIUD - Intra-Uterine DeviceKSS - Krishi Sainabaya Samity (Village Primuary Society)LLP - Low-Lift PumpLNG - Liquefied Natural GasLPG - Liquefied Petroleum GasMAF - Ministry of Agriculture and ForestsMCF - Million Standard Cubic FeetMCH - Maternal and Child HealthMEP - Minimum Export Price

MLF - Ministry of Livestock and FisheriesMLGRD&C - Ministry of Local Government, Rural Development and

CooperativesMLT - Medium- and Long-Term

MOF - Minstry of Food and Civil SuppliesMOSTI - Manually Operated Shallow Tubewell for lrrigationMP - Muriate of PotashlMTFPP - Medium-Term Foodgrain Production PlanNEC - National Economic CouncilNPK - Nitrogen-Phosphorus-Potassium (Compound Fertilizer)NRR - Net Reproduction RateODA - Official Development AssistancePCFP_ - Population Control and Family PlanningPCFCD - Population Control and Family Planning DivisionPDP - Primary Distribution PointPFDS - Public Foodgrain Distribution SystemPIB - Project Iniplementation BureauPOL - 'Petroleumn and Other LubricantsPIP - Plan Implementation ProgramPP - Project ProformaPS - Potassium Sulfate

PVC - Poly-Vinyl-Chloride

REB - Rural Electrification BoardSCI - Small and Cottage IndustrySDR - Special Drawing Right

SDTW - Small Deep TubewellSFYP - Second Five-Year Plan

SMP - Statutory Mlinimum PriceSP - Super-Phosphate

SSI - Small-Scale Industry

STR -STW - Shallow TubewellTCCA - Thana Central Cooperative AssociationTDDC - Thana Training and Development CenterTP - Triple-Phosphate

TSP - Triple-Super-Phosphate

TUC - Thana Union of CooperativesT&V - Training and VisitTYP - Two-Year PlaniUPE - Universal Primary EducationUSAID - United States Agency for International DevelopmentVCA - Village Cooperative AssociationWDR - World Development Report

SECTORAL OBJECTIVES AND STRATEGIES

CHAPTER 8: AGRICULTURE

Introduction

8.01 The review of recent economic developments in Part I emphasizedthe extent to which the performance of the economy as a whole is dependentupon the agricultural sector. The crux of the problem of agricultural devel-opment--and to a very large degree of national economic development--is, mostsimply stated, low agricultural productivity. Since the structure of theagricultural sector and the causes of low productivity and slow growth infoodgrain production in particular have been extensively reviewed elsewhere, 1/these subjects will not be reviewed here. Annexes VII-XI to this reportdo, however, provide an updated and fairly extensive review of the currentsituation in other subsectors, namely jute, "minor" crops, livestock, fisheriesand forestry. This chapter will focus mainly on the strategy for agriculturaldevelopment set forth in the SFYP and MTFPP, with particular reference totheir implementation requirements.

Overall Objectives and Strategy

8.02 The circumstances of Bangladesh require, and conditions permit, rapidgrowth in agricultural productivity, particularly in the foodgrain subsector.The Government, therefore, has appropriately chosen to emphasize in its SFYPan agriculture-based development strategy whose central objective is to attainfoodgrain self-sufficiency. Achievement of this objective--combined withincreased and more equitably distributed incomes and purchasing power--wouldeliminate the need for massive foodgrain imports and go far towards eliminat-ing the single most important manifestation of widespread poverty, i.e.,severe and chronic malnutrition. Other sectoral objectives of the SFYP are:to improve the availability and in-country distribution of agriculturalproducts essential to satisfy basic needs; to provide adequate food and fiber(especially cotton and jute) to the manufacturing sector; to diversify agri-culture with a view to producing a wider range of crops for export and importsubstitution; and to achieve a more equitable distribution of income, outputand employment among small and marginal farmers and the landless. The SFYPdoes not, however, directly address the issues relating to the longer-rundevelopment of agriculture, specifically with respect to the need to developa new impetus for growth which looks beyond foodgrain self-sufficiency.

8.03' The main elements of the Plan strategy aimed at achieving theseobjectives are:

(a) increasing the delivery and intensifying the utilization ofmodern inputs (irrigation, fertilizer, pesticides, vaccines,fishing gear, storage facilities, etc.);

1/ See, for example, Bangladesh: Food Policy Issues, IBRD-Report No. 2761-BD,December 19, 1979; and Bangladesh: Current Economic Position and Short-Term Outlook, IBRD-Report No. 2870-BD, March 21, 1980, Chapter 11.

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(b) improving organization, management and institutional infra-structure (in input delivery systems, implementation,monitoring, resource utilization, training, extension andthe like);

(c) rapid privatization of input delivery systems and of ownershipof productive assets (both individual and cooperative);

(d) mass participation of the rural population in developmentplanning and physical infrastructure development (to beinstitutionalized through functional cooperatives and villagegovernments);

(e) fuller resource utilization through increased cropping inten-sity, multisectoral exploitation of available resources, andimproved realization of inter-sectoral linkages; and

(f) basic policy support through rational input and incentiveoutput pricing (i.e., pricing inputs as close to economic costsas feasible without eroding the growth of input utilization,and providing effective mechanisms for maintaining incentiveoutput prices).

8.04 The Plan's basic-objectives have been translated into specificoutput targets for- the major crops, as well as for livestock, forestry andfisheries products. Table 8.1 presents these targets as compared with"benchmark" achievements (i.e., the "normalized" FY78 output).

8.05 Owing to the rapid increase in modern inputs envisaged under thePlan, the targeted growth of value added in agriculture (6.3% per annum overthe Plan period) would be somewhat lower than the growth of output, but stillvery high compared with past performance in Bangladesh and with the achieve-ments of other countries. For the foodgrain sector, there now exists adetailed action program (the MTFPP) with a sufficiently-specified projectportfolio to permit an assessment of the feasibility of achieving the targetedgrowth (value added rising at an average rate of 7.2% annually) for thatsector. This is obviously an extremely ambitious target, but one which istechnically feasible and could be achieved in the absence of major droughtsor floods.

8.06 Other agriculture (non-foodgrain crops plus forestry, fisheries andlivestock) is targeted to grow at the somewhat lower rate of 5.4% per annum,but this target may well be even more ambitious than that for the foodgrainsector. In the absence of detailed implementation and policy programs forthose sectors, however, it is more difficult to assess target feasibility.The output targets shown in Table 8.1 for pulses, oilseeds, cotton, and fishproducts in particular do not appear realistic, mainly owing to technical andinstitutional impediments to their realization by FY85. The target for juteproduction, on the other hand, represents essentially a stabilization ofoutput (albeit on less acreage) at a level achieved repeatedly in the past.The inputs required and constraints to be overcome in order to realize (oreven approach) the principal targets (for foodgrains, jute, fish production,livestock, forest products and selected minor crops) are described below.

Table 8.1: AGRICULTURAL OUTPUT TARGETS

"Benchmark" % IncreaseCommodity Unit Output FY85 Target over "Benchmark"

Crop ProductsRice '000 tons 12,764 17,780 39Wheat " " 736 2,250 206

Potatoes &Sweet Potatoes " " 1,616 2,025 25

Pulses " " 236 474 101Oilseeds " o 255 600 135Fruits " " 1,369 1,850 35Vegetables " o 750 1,500 100

Sugarcane " " 6,670 7,800 17

Tea '000 lbs. 81,600 95,000 16Tobacco " " 109,631 135,064 23

Jute '000 bales 5,359 6,500 21Cotton lint " " 4 263 6,475

Livestock ProductsMilk '000 tons 1,545 1,656 7Meat " " 316 386 22

Eggs " " 47 51 9

Fisheries ProductsInland fish products " " 525 1,114 /a 112Marine fish products " " 122 200 7a 64

Forestry ProductsTimber '000 cft. 42,000 54,000 29Fuelwood " " 57,800 72,800 26

Bamboo '000 tons 800 1,000 25Rubber tons 70 250 257Palm Oil tons .. 50

= not available.

/a These targets have been raised recently to 2.6 million tons of inlandfish products and 389,000 tons of marine fish products.

Source: SFYP; MTFPP; and BBS.

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Table 8.2: SFYP INVESTMENT PROGRAM FOR AGRICULTURE(in Tk million, at FY80 prices)

Financial Outl?XRequirements-

Sector/Subsector Public Private Total

Agriculture 27,170 .. ..

Crop sector 19,180Livestock sector 1,800Fisheries sector /b 3,090 (10,275) (13,375)

Forestry sector 3,100

Irrigation & WaterDevelopment 30,000 (5,800) (35,800)

BWDB schemes 15,230 - 15,230

BADC schemes 12,230 (5,390) (17,620)

Private sector schemes 1,240 (410) (1,650)

Unallocated 1,300 - 1,300

Rural Development &Institutions 7,990 - 7,990

Cooperative programs 3,410 - 3,410

Local government programs 240 - 240

Rural works programs 3,350 - 3,350

Miscellaneous programs 590 - 590Unallocated 400 - 400

Total 65,160 9,350 74,510

Memorandum ItemsRural Infrastructure 8,970 - 8,970

of which: rural electrification 5,970 5,970

rural roads 3,000 3,000

Non-monetized Investment 3,900 /c 2,600 6,500

= not available.

/a Includes some allocations for recurrent inputs.

7W The targets for the fisheries sector are undergoing a major

upward revision at present./c Corresponds to value of voluntary labor mobilized for canal

excavation, embankment and road construction, etc.

Notes:- These data are drawn from different sections of the draft SFYP

and are not entirely consistent in definition and coverage with

data shown in other sections of the SFYP. For example, the

subsectoral figures for the private sector do not add to the

total shown, the latter being the figure reported in the Plan's

financial summary. (See Table 7.4).- Data in parentheses are incomplete totals.

Source: SFYP.

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The SFYP Investment Program

8.07 A considerable portion of the SFYP's targeted increases in outputis expected to derive from improved cultivation practices, increased capacityutilization, and other means of raising productivity that do not entail largeinvestment expenditures. These measures surely warrant highest priority,particularly in light of the prospective shortfall in resource availabilitiesdiscussed in Chapter 7. Nevertheless, achievement of the ambitious targetsdescribed above will also require large new investments in productive assetsand greatly expanded use of recurrent inputs. The financing requirements-foragricultural investments and major recurrent inputs (especially fertilizer)targeted for the public and private sectors are summarized in Table 8.2.

8.08 The projected Tk 65 billion in public sector outlays for agricultureand water development (net of recoveries from private beneficiaries) comprises32% of total public sector development expenditure planned under the SFYP.If rural electrification and the construction of feeder roads are included,the percentage would be almost 37% of the SFYP total. These are significantlyhigher percentages than were allocated to these sectors in the past and repre-sent a highly-desirable reorientation of development priorities towards theagricultural and rural sectors. They also signal GOB's intent to reverse thetrend of the late 1970s when the share of agriculture (including water andrural development) declined steadily and fell well below 30% of annual ADPallocations. Moreover, since GOB intends to reduce progressively the largefertilizer subsidy (which is included in the ADP allocation to agriculture),the sectoral share of fixed capital formation vis-a-vis recurrent expenditurewould rise accordingly.

8.09 The Plan envisages that over Tk 9 billion will be invested in agri-culture by the private sector (equivalent to 17% of total private investmentexpected during the Plan period). It does not, however, specify the incentiveand other policy measures which will need to be taken if this large volume ofprivate resources is to be mobilized by millions of poor farmers. Clearly, asubstantial expansion of credit will be required to facilitate the investmentsand input purchases necessary to achieve the targeted output growth. The SFYPstates that agricultural credit requirements are anticipated to increase by20-25% annually, but does not elaborate on this subject. The MTFPP, on theother hand, indicates that the volume of short-term crop credit would have todouble by FY85 (from the present level of Tk 1.5 billion) and that medium-termcredit would have to increase about five-fold over the Plan period (to reachTk 500 million by FY85). Even with this credit expansion, institutionalcredit would finance only 42% of targeted private sector financing, theremainder to come from private savings or non-institutional credit.

8.10 The SFYP's lack of a detailed financing program makes it difficultto assess whether the envisaged public and private resource mobilizationefforts are mutually consistent. For example, realization of the publicresource mobilization targets is expected to entail new measures to tax agri-cultural incomes and land, but such measures (which remain to be specified)would partly be at the expense of private savings and investment, as well asconsumption. Non-monetized investment in agriculture is projected to be very

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substantial--Tk 6.5 billion over the Plan period; pending the preparation

of more detailed and time-specific programs for "mass mobilization", however,

this figure should be regarded mainly as indicative of the Government's

intentions.

The Medium-Term Foodgrain Production Plan (MTFPP)

8.11 Beginning in 1978, with technical assistance from IDA, GOB initiatedwork on a detailed sectoral plan and implementation program for accelerating

foodgrain production. The resultant Medium-Term Foodgrain Production Plan

(MTFPP) has recently been completed, and it now represents the cornerstone of

GOB's development strategy for the water development and foodgrain productionsectors. While the MTFPP aims most specifically at foodgrain self-sufficiencyby FY85, its implementation will also greatly improve the production environ-

ment and output growth potential for other crops. The benefits from the pro-

vision of irrigation and fertilizer, the construction of rural roads and storage

facilities, and the intensification of agricultural research and extension

will not be limited solely to foodgrain production. Several projects in the

MTFPP portfolio also aim specifically at increasing the production of other

important crops, e.g., by providing improved seeds, research and extension. 1/

8.12 In the MTFPP, the projected input requirements for producing 20million tons of foodgrains (which would constitute foodgrain self-sufficiency

at a level of 17.5 ozs. per day of per capita consumption if reached by FY85)

have been disaggregated and then grouped into a portfolio of investment proj-ects-and programs. This portfolio is the core of the MTFPP's physical program.

The other (and equally important)-principal feature of the MTFPP is its

attendant implementation framework. The portfolio provides an overview ofthe investment package, a basis for monitoring implementation, and a guide

for donors who wish to support Bangladesh's agricultural development. An

important feature of the portfolio is that it consists largely of short-gestation, high-priority and divisible projects ready for immediate donor

appraisal and Government implementation. This characteristic of the programlends an important degree of flexibility to its financing and implementation.

It should be noted, however, that for many projects only briefs have so far

been prepared and that considerable additional preparation work will be

required on these projects.

8.13 The MTFPP portfolio consists of 57 specific projects, almost all of

which are linked directly to foodgrain production, processing, and distribution.

Its total financing requirements (in constant FY80 prices) have been estimated

at Tk 86 billion (US$5.4 billion), of which roughly Tk 24 billion (US$1.5

1/ Because considerable work on the MTFPP took place following publication

of the draft SFYP, the MTFPP's input, financing and output targets in

several respects supersede those contained in the (draft) SFYP. The

principal questions of consistency appear to relate to the estimated

financing requirements, which are spelled out in more detail in the MTFPP

than in the SFYP. At the time of this report's preparation, changes

were also being considered in the programs for the fisheries and the

foodgrain storage subsectors; in both cases, it appeared that the targets

and concomitant input and financing requirements might be increased

significantly above the levels indicated in the draft SFYP. Pending the

finalization of these new targets, the present report is based on data

in the draft SFYP.

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billion) comprise private sector outlays for non-investment inputs (fertilizer,pesticides, fuel for irrigation pumps, vaccines and seeds). 1/ The capitalinvestment is estimated at Tk 62 billion (US$3.9 billion)--Tk 51 billion inthe public sector and Tk 11 billion for minor irrigation facilities in theprivate sector. The foreign exchange component of the entire program (inclu-sive of recurrent inputs in both the public and private sector components)is estimated at Tk 45 billion (in constant FY80 prices)--equivalent to US$2.8billion. Of this, US$1.28 billion--or just under 45%--would be for invest-ments in fertilizer distribution facilities and for direct fertilizer imports,and some Tk 2 billion (US$126 million) for the production and distribution ofseeds, pesticides, etc. The other foreign exchange costs are distributed asfollows: $736 million (26%) for minor irrigation; $214 million for majorirrigation, drainage and flood control projects; $214 million for ruralinfrastructure and institutions; $175 million for marketing, storage andtransport; and $59 million for research, extension and training.

8.14 Aid financing for the foreign exchange component has already beensecured for a large number of the MTFPP projects, but for many others, donorcommitments remain to be obtained, and for most, local currency needs are notaid-financed. IDA recommends that donors give high priority to the funding ofthe MTFPP portfolio and consider making generous provisions for local currencyfinancing. Indeed, as many of the MTFPP components constitute repeater proj-ects of successful past undertakings, substantial sector financing would beboth desirable and possible. Tk 41 billion (equivalent to more than $2.5billion) in domestic financing will be required to implement the MTFPP, evenafter allowing for the expected contribution of aid-financed fertilizerimports and their sales to generate counterpart funds.

8.15 Although both the SFYP and the MTFPP provide reasonably detailedbreakdowns of expenditure requirements, they do not yet provide correspondinglydetailed financing plans in which specific financial sources are balancedwith specified uses on a year-to-year basis. This is particularly crucialin light of: (i) the preliminary indication (which remains to be corroborated)that the MTFPP's full implementation may require a larger absolute volume ofresources for the agricultural sector than the SFYP has allocated, assumingthat no reductions are effected in allocations for the non-foodgrain sub-sectors; (ii) the large amount of private outlays for both investment andrecurrent expenditures, the feasibility of which will be highly contingentupon credit availability, agricultural input and output pricing policies, andother subsidy and incentive policies pursued; and (iii) the planned phasingof both private and public outlays.

1/ The significantly larger amount of private financing requirements shownin the MTFPP (compared to the draft SFYP) is mainly due to two recentpolicy decisions taken by GOB: (i) the decision to sell increasing numbersof LLPs, STWs and DTWs to private owners, rather than to continue to leasethem out at highly subsidized rates; and (ii) the increase in fertilizersales prices (effected in August 1980) and the decision to continue toreduce the unit subsidy on fertilizer throughout the SFYP period. Itshould also be noted that private sector expenditures for fertilizerpurchases were not included in the sectoral financing summary provided

in the draft SFYP, but are included in the MTFPP cost estimates.

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8.16 All of these considerations underline the urgency of the needfor GOB to elaborate and clarify its financing program. If it proves thatthe MTFPP's financing requirements are in fact larger than implied in theSFYP, it follows that the MTFPP's designation as a "core program" will requirereductions in other SFYP investment and production targets, and these changesneed to be identified as soon as possible. Moreover, given the likelihood ofan overall resource shortfall for the SFYP, the required allocation for agri-culture (especially if expanded fish production targets are accounted for) mayhave to be raised to well above 32% in the coming ADPs. This outcome is alsoimplied by the fact that the MTFPP calls for especially rapid growth of publicoutlays on agriculture in the first three years of the Plan period. The allo-cation for agriculture in the FY81 ADP is already some 20% below the MTFPPfinancial target 1/ in real terms. Moreover, the MTFPP targets would call forthe FY82 ADP allocation to increase by about 50% in real terms above thisyear's actual allocation and by a further 13% in real terms in FY83.

8.17 On the one hand, the overall resource scarcity situation will makeit necessary for GOB to ensure that project costs are indeed minimized to theextent feasible, and it may well prove that certain projects in the MTFPP canhave their indicated costs reduced without loss of effectiveness. On theother hand, tie magnitude of the financing requirements in the early yearsof the Plan clearly underscores the need for urgency, on the part of donorsas well as GOB, to ensure the.adequate funding of the investment and inputprograms (to be outlined bel.ow).upon whose-realization rests the feasibilityof achieving the output targets.

Input Targets and Requirements

8.18 In preparing the SFYP, a number of the principal agricultural out-put targets (summarized above in Table 8.1) were exogenously determined (i.e.,predetermined at political levels), with input and investment requirementssubsequently estimated on the basis of technical (input/output and capital)coefficients. Such a mechanistic approach has inevitably resulted in a rela-tive neglect of behavioral, institutional and policy variables critical tothe determination of actual (as distinguished from planned) input/outputrelationships, and gives rise to a substantial margin of error in the projec-tions. The MTFPP, however, provides a more substantial basis (consisting ofthe project portfolio) for estimating capital requirements for the foodgrainsubsector and the irrigation program, while the input/output relationshipshave also been examined with somewhat more rigor than characterizes the othersubsectoral programs. Table 8.3 lists some of the more important physicalinput requirements identified in the SFYP and/or MTFPP.

1/ The actual FY81 ADP allocation for agriculture is Tk 7.17 billion (incurrent prices), compared with an MTFPP target of Tk 7.93 billion (inFY80 prices). The annual MTFPP targets (in Tk billion, at FY80 prices)are as follows:

FY81 FY82 FY83 FY84 FY85

7.93 9.34 11.24 11.39 10.77

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Table 8.3: MAJORP-HYSICAL INPUT TARGETS OF THE SFYP AND MTFPP

"Benchmark"Inputs Unit Achievement FY85 Target

LLPs in operation no. 39,000* 50,000STWs in operation no. 23,000* 120,000DTWs in operation no. 10,300* 25,000HTWs in operation no. 210,000* 500,000Acreage irrigated

by major gravityschemes '000 acres 241* 850

Total acreage underirrigation (net) mill. acres 3.6* 7.2

Fertilizer use '000 tons 840* 1,900Fertilizer storage

capacity (public) '000 tons 156 /a 500Seed storage capacity

(public) '000 tons 15 33Foodgrain storage

capacity (public) '000 tons 1,352 2,000 /b

Artificial cattleinseminations '000 200 500

Animal vaccineutilization mill. doses 32 550

Veterinary drugutilization mill. doses 5 200

Mechanized fishing boats no. 1,400 4,000 /bTrawlers no. 12 74 7HFish fry and fingerlings mill. 290 1,780 /b

Reforestation (annual) acres 30,000 103,000Tree seedling

distribution (annual) m-illions 7 45

* = estimated -actual FY80 achievement./a Plus 241,000U0tons of hired capacity, to be replaced entirely.T7 'AIsignificant upwara rev.'i4sion of this target is being prepared.

Source: SFYP,-and MTFPP.

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8.19 Wheat and HYV aman would be the two crops contributing most to theincreased foodgrain production during the SFYP period. The expected produc-tion increases will be about two-thirds from increased yields and the remainderfrom higher cropping intensities. Provision of irrigation during the dryseason, and drainage and flood control in the monsoon season, will pave theway for higher cropping intensities. The pivotal input component of the agri-

cultural production program, especially with respect to foodgrains, is the100% increase targeted in irrigated acreage, from the benchmark level of 3.6million acres to 7.2 million acres in FY85. Minor irrigation is to accountfor about 80% of the incremental irrigated area, and half of the increasedproduction would be attributable to this. Other particularly notable inputtargets include: a more-than-doubling of fertilizer use; extension of floodcontrol and drainage schemes to cover an additional 1.5 million acres; a 50%increase in public sector foodgrain storage capacity; expansion of agricul-tural credit at an average rate of about 25% per year; and expansion of thearea cultivated with HYV seeds from 3.1 million acres to 7.9 million acres.

8.20 The proposed program will entail a number of complementary invest-ments in infrastructure (including for rural roads and rural electrification)and institutional developments. For example, special attention will be givento developing farmer organizations to promote optimum use of investment inirrigation. Promising results have been obtained from a pilot command areadevelopment scheme in the Bogra district, and these efforts will be intensi-fied and expanded on a country-wide basis. To support the large expansion inthe volume of fertilizers to be distributed, storage will be increased, anda study is in hand to optimize the efficiency of fertilizer use and furtherimprove marketing and distribution. Particular emphasis will be given toadaptive research, based on feedback from the extension service, while farmertraining will be organized on a regular basis through the training and visit(T&V) extension system. To lessen dependence on foreign supplies, GOB hasissued licenses to three local entrepreneurs for manufacturing diesel enginesfor use in tubewell irrigation. Two firms in the public sector have alreadybegun to produce such engines. A program for setting up maintenance workshopsin the private sector has been launched, and input supply will continue to behanded over to the private sector. Progress is being made regarding the saleof deep tubewells and low-lift pumps to cooperative groups or individualfarmers, and steps have been taken to increase the availability of credit tocooperative farmers and to liberalize credit facilities. Private graintraders are being given more liberal access to credit both for trading andconstruction of private storage. For better coordination among agencies inthe field, GOB appointed Ministers as Chairmen of District AgriculturalDevelopment Committees and members of Parliament as District DevelopmentCoordinators. The participation of 7 million farm families in the Plan'simplementation is intended to be encouraged by reinvigorating the cooperativemovement and by involving the Swanirvar Gram Sarkars.

8.21 The realization of GOB's ambitious input targets will require drasticimprovement in implementation capacity. Between FY73 and FY80, for example,the average annual increase in irrigated area was only about 100,000 acres,compared to the projected increase of over 700,000 acres per year. Thenumber of deep tubewells sunk by BADC has averaged merely 915 per annum duringthe past five years; nearly 5,000 new DTWs will have to be commissioned everyyear during the SFYP period to meet the Plan target. Compared to an average

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annual increase in the number of LLPs fielded by BADC of about 550 betweenFY76 and FY80, the Plan will require an average of 2,200 new LLPs to be fieldedannually over each of the next five years. The number of shallow tubewellsto be in operation by FY85 is to be nearly 6 times the total number put intooperation since the STW program was initiated in FY72. Similarly, the areaplanted to HYV seeds expanded by only 15% from FY75 through FY79, comparedwith the 150% increase required under the Plan.

The MTFPP Production Framework

8.22 The input objectives described in Table 8.3 should be assessed inthe context of Table 8.4, which shows more explicitly the input/output frame-work of the MTFPP. It indicates that the targeted increase in foodgrainproduction (from 13.1 million tons to 20 million tons) will be directlycontingent upon the achievement of a series of specific programs designed toraise productivity and cropping intensity. Not shown is the extent to whichthese actions are contingent upon the adoption of complementary policies andinstitutional improvements aimed at creating sufficient incentives and atovercoming the various institutional and behavioural constraints currentlyimpeding the growth of production. These issues will be considered in paras.8.28-8.33 below. The following paragraphs consider in turn some of the prin-cipal factors bearing upon the prospects for achieving each of the input/output targets listed in Table 8.4.-

Table 8.4: FRAMEWORK FOR THE MEDIUM-TERM FOODGRAIN PRODUCTION PLAN /a(Sources of growth of foodgrain production by 6.9 million tongs

Million tons

Aggregate Foodgrain Output, Benchmark Year FY78 13.1

Switch to HYVs for rainfed Aus and Aman(2.5 million acres at 0.4 t/ac) 1.0

Expansion of acreage for rainfed wheat(1 million acres at 0.5 t/ac) 0.5

Improved cultivation practices(25 million acres at 1 maund/ac) 1.0

Improved capacity utilization of existing irrigationfacilities for Boro/wheat/early Aus(0.5 million acres at 1 t/ac) 0.5

Additional irrigation facilities for Boro/wheat/early Aus(3 million acres at 1 t/ac) 3.0

Supplementary irrigation for rainfed Aus and Aman(2 million acres at 0.25 t/ac) 0.5

Additional drainage and flood control facilities(1.5 million acres at 0.25 t/ac) 0.4

Aggregate Potential Foodgrain Output, Terminal Year FY85 20.0

(Less contingency for adverse weather, implementationdeficiencies and delays, etc.) (-2.0)

Aggregate potential foodgrain output, adjusted 18.0

/a A detailed set of notes explaining the assumptions underlying thistable is available for reference in Table 7.13 in the StatisticalAppendix.

Source: MTFPP.

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8.23 The switch to HYVs for rainfed Aus and Aman paddy will be criticallydependent on: (i) the supply of suitable varieties--flood-resistant for Ausand broadcast Aman, drought-resistant for transplanted Aman; and (ii) themaintenance of adequate farmgate prices. High priority, therefore, needs tobe given to the development, multiplication, demonstration, and delivery tofarmers of such varieties and to the expansion of the foodgrain procurementeffort. In addition, the targeted installation (by BWDB) of additionaldrainage and flood control facilities on 1.5 million acres would reduce therisks attached to rainfed HYV cultivation. In the past, completion of suchschemes has been affected adversely by BWDB's excessive emphasis on large-scale projects and by cumbersome administrative procedures leading to bottle-necks. Thus, the recent shift in BWDB's project portfolio in favor ofsmaller-scale projects is a constructive step, although much remains to bedone to streamline implementation procedures.

8.24 The greatest stimulus to foodgrain production is expected to stemfrom the provision of additional irrigation facilities (on 3 million acres)and of supplementary irrigation for rainfed grains (on 2 million acres) throughthe higher productivity that this will facilitate. 1/ The bulk of theseincreases will be attributable to minor irrigation schemes (pumps and tube-wells), where engine and pump procurement and installation will be critical.Achievement of these targets will depend critically, therefore, on the abilityof both GOB and the private sector to ensure timely delivery of adequateequipment and supplies.. This will require vigorous action on the part.of thepublic sector to reduce lags in procurement plus a much-expanded role of theprivate sector. Although not critical at present, GOB will also need to moni-tor carefully the potential impact on consumer demand of removing pump andfertilizer subsidies.

8.25 Increased capacity utilization of existing irrigation facilities isprojected to account for some 500,000 tons of additional foodgrain production.The achievement of this objective will require adequate and timely suppliesof fuel and spare parts, together with sufficient repair and maintenance facil-ities. Continued movement towards full-cost pricing of equipment should, byraising fixed costs, encourage increases in command area utilization. Equallyimportant will be the efforts required by local officials (in particular exten-sion agents) to improve the cohesion and managerial capabilities of pumpgroups. Even more sizeable benefits (a million tons of additional foodgrainsby FY85) are expected to accrue from the widespread adoption of improved culti-vation practices, including expanded fertilizer use, better land preparation,sowing, weeding, nursery care, and pest control. These may be the most diffi-cult to achieve insofar as the constraints may be least susceptible to policyinfluence. Greater and more effective extension services will clearly be vital.The national shortage of animal draft power is likely to become an increasinglyimportant constraint in this area. 2/

1/ In interpreting Table 8.3, it should be noted that the increased produc-tion attributed to the increase in irrigated area does not representthe marginal productivity of irrigation alone. It reflects also theassumption that other modern inputs (fertilizers, pesticides, etc.) willbe used intensively in the (newly) irrigated areas.

2/ See paras. 8.61-8.65 below and Annex XI for a discussion of this issue.

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8.26 In contrast, the expansion of wheat acreage and output (mostly underrainfed conditions, with supplementary irrigation) may well prove to be theleast difficult of the MTFPP targets to achieve, provided farmers are givenappropriate incentives. A main reason for this is that considerable acreagestill lies fallow or is planted to low-value and low-yielding crops duringthe dry season, while the rapid growth of wheat production in recent yearshas demonstrated to farmers the technical feasibility and economic profitabil-ity of wheat cultivation. It should also be noted that the Plan target callsonly for substituting domestic wheat production for current wheat imports, sothat realization of that target would actually imply a decline of wheat con-sumption on a per capita basis. Hence, future demand for wheat--in cont-rastto future demand for rice l/--is not likely to be a constraint to outputgrowth.

8.27 The shift from wheat importation to domestic production will, how-ever, entail a probable reduction in the availability of wheat in the urbanareas (where most imported wheat is currently distributed through the publicration system) and a relative increase in the rural areas. While this shiftwould appear to be desirable in terms of equity and welfare (and also in termsof the public finances as the ration system itself is phased out), it may inthe short run give rise to some new logistical and marketing problems. Anotherpotential problem associated with the targeted expansion in wheat acreage isthat it may seriously encroach on the acreage hitherto used for growing pulsesand oilseeds, which are important sources of protein in the rural areas andwhich are already in short supply. The Plan includes ambitious growth andoutput targets for these crops but does not provide the same incentive pricingarrangements to stimulate their production.

8.28 Implicit in each of the targets presented in Table 8.3 is the crucialrole to be played by increased fertilizer use. As with irrigation, sufficientand timely supply and distribution represent the immediate barriers to increasedusage. Demand has not been a constraint in the past and is not likely to becomeone in the near future, unless the expansion of irrigation and flood controlfails to materialize as targeted. Concerns that the gradual move towards full-cost pricing of fertilizer might severely dampen demand for fertilizer arelegitimate, but only if lack of irrigation and other technological constraints(such as micro-nutrient deficiencies) are not overcome, 2/ or if ineffectiveoutput price support were to erode the incentives for fertilizer use. In thisrespect, the experience gained in the past two years with private marketingof fertilizer is encouraging.

8.29 Also implicit in the input targets is the presumption that credit tothe private sector will expand apace with the rapid growth required for privateinvestments in irrigation facilities and for purchases of recurrent inputs.

1/ The issue of the potential growth of demand for foodgrains vis-a-vis thegrowth of supply has been mentioned in Chapter 7 and is discussed atgreater length in Annex IV.

2/ This qualification stems, of course, from the fact that the modern inputsof HYV seeds, irrigation and fertilizer are highly complementary, so thatthe rate of return realized from the application of each depends greatlyupon the availability of the others.

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As indicated above, total private sector financing envisaged under the MTFPPwill be on the order of Tk 35 billion (US$2.2 billion) in constant FY80prices. 1/ Clearly, private savings generated and retained in the rural areaswill not be sufficient to finance these outlays. Institutional credit facili-ties will therefore have to be expanded greatly over existing levels to permitindividual farmers and cooperatives to finance the investments and inputsrequired to meet the output targets of the MTFPP. At the same time, creditrecovery performance must be drastically improved lest such an expanded creditprogram degenerate into a massive unintended subsidization of credit defaul-ters. At present, the capability of existing credit institutions to handlea greatly increased program is limited, and their lending criteria are in needof rationalization. Thus, there is a pressing need both for institution build-ing and for further policy development in this area.

8.30 In order to overcome some of these constraints, the MTFPP providesfor supporting investments in research, extension, marketing and rural insti-tutions and infrastructure. Most of these appear on the whole to be well con-ceived and appropriate, although greater attention is warranted to the problemsof overstaffing and duplicative effort among the plethora of organizations andinstitutions working at the village level, many of whose activities are notnow sufficiently coordinated. As in so many other areas, this too calls forconsolidation of efforts, not a further spreading more thinly of scarce manpowerand institutional capabilities. GOB evidently believes that.the coordination-problem may.-be- overcome when the Gram Sarkars become operational., The--VillageProjec-t Committees, to be formed in each village, are intended to coordinate.the work of the various-.agencies in the field, where most of the dupliicationtakes place. The Government also intends to consolidate its service centersat the Thana level, but it is recognized that this will take considerable timeto implement.

8.31 The foregoing assessment has touched upon several potential constraintsto the realization of the MTFPP's and SFYP's agricultural targets. The mutualconsistency of the targets is one such constraint, both in terms of the outputtargets (e.g., wheat vs. pulses) and in terms of the aggregate supply/demandbalance. These may well become more serious issues in the later years of thePlan, but do not yet constitute binding constraints. 2/ By and large, the Planis internally consistent insofar as it recognizes and addresses the principal

1/ Tk 20.6 billion is envisaged for payments for fertilizer alone over thefive-year period; some Tk 10.8 billion will be required to finance pri-vate investments in small-scale irrigation and repair facilities as wellas some fuel; and Tk 2.9 billion will be needed for the purchase ofseeds and of plant protection chemicals.

2/ It should be noted, however, that the "effective demand problem" may applynot only to foodgrains but also to cotton, vegetables or other commoditiestowards the end of the Plan period unless measures to generate non-agricultural employment and incomes, to prevent serious deterioration inincome distribution and to facilitate efficient marketing of agriculturalproducts are enacted. The analysis and findings of Annex IV on the effec-tive demand for foodgrains could be applied to the prospective demand for

other agricultural consumer goods as well.

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technological, logistical and institutional constraints to agricultural devel-opment. Similarly, the sectoral absorptive capacity--in terms of projectpreparation capability--should not comprise the binding constraint since adetailed project portfolio has already been prepared. Nor should resourceavailabilities be a major constraint, given both the "core priority" status ofthe MTFPP within the SFYP and the full support from aid donors warranted forthis program. This is not to say, however, that financial availabilities willnot be a binding constraint, given the especially large outlays required in the

next two to three years, the realization of which will call for extraordinaryresource mobilization and expenditure control efforts by GOB plus large newcommitments of commodity and project aid (inclusive of a large measure of localcurrency financing) by the donors.

8.32 Aside from the growth of effective demand (which is of course largelya function of the growth of rural employment and incomes outside of agricul-ture per se) and financial availabilities, the major proximate constraintson the rate of agricultural growth are likely to be implementation capacityand those aspects of the country's socio-economic and political structurethat are not conducive to rapid change, even with substantial improvementsin the policy framework. In the later years of the Plan period, moreover,input demand could emerge as a constraint, if reduced subsidies were to narrowincentive margins for further intensification of the use of modern productioninputs. This should not be a problem insofar as rising productivity servesto lower unit production costs, while output price support for foodgrains,jute or other crops serves to prevent an erosion of incentives. But it could

well constitute an impediment to the relative growth of other crops not bene-fiting from such intensive input supply programs and price support policies.

GOB's jute price policy is particularly in need of clarification in thisrespect.

8.33 With regard to the growth-retarding socio-economic characteristicsof Bangladesh's agricultural production structure, the problems of landtenure, plot consolidation, semi-feudal patron-client relationships in thevillages, and highly skewed income and land distribution will need to be dealtwith more decisively both in order to maximize the utilization of agriculturalinputs and to achieve the improved income distribution necessary to generateadequate effective demand for the targeted outputs. Similarly, the availabi-lity of institutional credit for agricultural activities will be of crucialimportance in supporting the demand for such modern inputs (and in breakingthe traditional hold of village money-lenders on small farmers); the capacityof the banking institutions to provide such credit and to assure recovery andrecycling of credit funds will be severely strained. Finally, as noted above,extension and research activities will need to be,greatly strengthened inorder to ensure that farmers are made aware of available technology and inputsand that available resources are better utilized.

Non-Foodgrain Output Targets and Constraints

8.34 Many of the same problems pertain to the feasibility of the ambitiousSFYP targets for raising non-foodgrain agricultural output. In particular,increases in crop production will depend on the availability of supplementaryirrigation as well as the ability of the research and extension services to

promote and disseminate improved varieties and intercropping systems. For allcrops, the level of output prices will be crucial in determining cropping

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patterns, and in some cases (e.g., pulses and oilseeds) Government influenceis much weaker than for the major foodgrains. For the non-foodgrain sectorsas a whole, major constraints are likely to be poor farm management and culti-vation techniques--the legacy of previous years of neglect and the low levelof technology employed. These will clearly be difficult to overcome in theshort run, though the effort to do so needs to be initiated now. At the sametime, agricultural pricing policy needs to be geared towards a more rationaland properly balanced input and output price structure to induce farmersto make individual cropping decisions which, in the country-wide aggregate,correspond to the combined output targets set by the Government's planners.

8.35 An important problem in the jute sector, for example, will continueto be that of simultaneously assuring:

(i) that raw jute output is sufficient (in quantity and quality)to meet both internal and export demand;

(ii) that raw jute output from year to year is more stable thanit has been in the past;

(iii) that the three million small jute farmers receive adequateprices for their output to permit not merely subsistencesurvival but increased utilization of modern inputs withinthe framework of the Intensive Jute Cultivation Scheme(IJCS);

(iv) that the increase in yields within the IJCS area permits asteady reduction in jute acreage outside this area and itsutilization for other crops; and

(v) that export earnings from raw jute and jute manufacturescombined increase in real terms.

8.36 The policy adopted with regard to the raw jute prices to be paidto jute growers is the single most important issue that needs to be resolvedif these objectives are to be met. It is these prices that ultimately deter-mine the acreage under jute (both within and outside the IJCS area) and theuse of inputs, and thereby the quantity and quality of raw jute supply fromyear to year. Without effective mechanisms to assure stable incentive pricesfor jute cultivators within the IJCS, the main objectives of the country'sjute policy may not be attainable and the annual output target of 6.5 millionbales of raw jute, although achieved in the past, may be an elusive goal.

8.37. For the so-called "minor" crops (i.e., all crops other than rice,wheat and jute) the general constraints noted above also apply. Althoughfarmers are familiar with traditional methods of cultivating most of thesecrops, there is insufficient knowledge of proper cultivation technology forthe increasingly available improved varieties. For some crops (e.g., Americancotton or potatoes), extension services will have to train farmers even in thefundamentals of cultivation, as these crops are still largely unknown to mostBangladeshi farmers. There is considerable untapped potential for outputincreases, but without determined efforts by the Government to foster theirgrowth, a decline in the output of many of these "minor crops" may well occur

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in the medium term. The extremely small size of most farms, the severe short-age of staple foods, and the heavy emphasis on foodgrain production are factorswhich mitigate strongly against significant increases in minor crop output.The production of such important crops as pulses, oilseeds and sugarcane hasin fact declined during the last decade (while that of most others has stag-nated), as farmers have found it increasingly necessary and (with the growingeffectiveness of the Government's output price support for rice and wheat)profitable to divert acreage from minor crops to foodgrain cultivation, partic-ularly during the dry season where the spread of irrigation has made grainproduction less risky and more attractive. Hence, the planners' aggregateacreage and output targets for many of the minor crops are unlikely to be-achieved unless the necessary extension services, input delivery systems,and price support mechanisms are soon put in place.

8.38 Some of the Plan's output targets in the livestock sector (for beef,goat meat, chicken eggs, and hides and skins) appear relatively modest andreasonable in light of the severe constraints to livestock development andthe fact that top priority must be accorded to measures to overcome the acuteand worsening draft power shortage; others (notably those for increasing thenumber of sheep and ducks and the production of poultry meat, duck eggs andmilk) are considerably less realistic. The alleviation of the draft powerproblem is in fact critical to the attainment of the crop output targets ofthe MTFPP/SFYP. Since widespread farm mechanization is not a feasible solutionin the foreseeable future, the chief objective for livestock developmentshould be the strengthening of the available draft animals. Preventive andcurative veterinary care, improved feed and fodder supply, and genetic upgrad-ing of the cattle herd are the means to seek attainment of this overridingobjective. Although the planners have correctly identified this problem andits potential solutions, they appear to have vastly overestimated the feasibil-ity of achieving the specific input targets for vaccines, drugs, fodder, andartificial inseminations. They also seem to have largely overlooked theurgent need for the development and widespread distribution of improved farmimplements which could greatly improve farm productivity and ameliorate thedraft power constraint. Annex XI discusses the problems and major policyissues in this sector in greater detail. 1/

8.39 The potential of the fisheries sector--both inland and marine--issubstantial, but remains largely underexploited owing both to past neglectin the private sector and to mismanagement in the public sector. The stateof planning for fisheries development is very underdeveloped, as is the capa-city to implement even modest projects and programs. The draft SFYP callsfor a doubling of annual fish production within five years, largely throughintensified exploitation of existing capture potential and through a massiveshift from traditional capture to modern culture technology in both closedand open water bodies.

8.40 Within the inland fisheries sector, fish culture is currently prac-ticed almost exclusively in village ponds and tanks where yields have beenfar below potential owing mainly to ownership disputes, poor management,inadequate pond design and maintenance, insufficient input supply, and the

1/ See also paras. 8.61-8.65 below.

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lack of extension service support. The output from fish capture in inland

water bodies (principally rivers, canals, lakes, haors, beels and baors, butalso flooded crop lands) has remained low owing to: inappropriate criteriafor leasing out exploitation rights in public water bodies; inadequate enforce-

ment of proper conservation methods and insufficient protection for spawningareas; displacement of traditional fishermen by commercial entrepreneurs in

pursuit of short-run gains; lack of equipment; and insufficient supportiveinfrastructure for storage, processing and marketing. The planners' proposalto foster fish culture on a large scale in cages or in fenced-off areas of

open water has not yet been practiced for lack of expertise and of requiredinputs. Leasing criteria and procedures have also been inadequate to induce

interest in such practices.

8.41 Coastal and estuary fishing is largely the domain of traditionalfishermen operating _small boats--frequently under exploitative contracts withfish traders and boat owners. Its development has been severely hamperedby a lack of suitable landing sites, the scarcity of storage, service and

marketing facilities, and by the limited range of manually or wind-poweredboats. Aid-financed efforts to establish landing sites and support infra-

structure and to provide motorized boats have been implemented only slowlyand ineffectively. Finally, deep-sea fishing in the Bay of Bengal has had ahistory of high expectations, false starts, poor planning, and wasted invest-ments. The Bangladesh Fisheries Development Corporation (responsible for

the marine sector) has attempted to combine basic infrastructure and servicesupport activities with direct involvement in production and distribution

operations, but with unsatisfactory results. Large losses have been made

on its commercial operations, and its Chittagong Fish Harbour Complex isvastly underutilized. BFDC's own trawler fleet is too small and unproductive,

and there are very few privately owned trawlers because the experience andinvestment capital are scarce while BFDC's support and marketing functionshave been inadequate to attract much private entrepreneurial interest. Efforts

to improve the situation by entering into joint trawling agreements with

Kuweit and Thailand proved to be far less beneficial for Bangladesh than hadbeen hoped, and the agreement with Thailand has recently been cancelled.

8.42 The draft SFYP unfortunately contains little in the way of well-defined, specific and realistic proposals for programs to overcome these various

constraints. It sets forth a substantial investment program, but although someof the technical, institutional and socio-economic constraints are identified

and remedial policies and programs are proposed, it fails to chart a realis-tically feasible action program to raise the present low productivity of thefisheries subsectors. Moreover, subsequent to the issuance of the draft Plan,

the Government announced a large upward revision in the Plan's output targets.

The feasibility of those targets is all the more doubtful not only in terms of

their financial implications (especially for the private sector), but moreimportantly in light of the inadequate input supplies, administrative andmanagerial manpower, extension services, and supporting infrastructure. The

far-reaching reforms in ownership and exploitation rights that would beneeded--and are properly identified by the planners--to permit such an expan-

sion in fisheries development and output will in any event require bothconsiderable political will and time to implement.

8.43 In the forestry sector, the situation is rather different in thatthe output requirements far exceed the potential, even if available resources

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were fully exploited. While there is some scope for increasing the output offorestry products in the- short run, forestry development is inherently a long-term proposition. Given the important economic functions of forests and trees(provision of lumber and fuelwood, tree fruit production, protection againstsoil erosion, preservation of climatological balance), the technical and econo-mic issues relating to forestry development differ considerably from thoserelating to field-cropping.

8.44 The proposed SFYP strategy for the sector emphasizes high-qualitylumber production for industrial uses rather than increased output of low-quality wood (from village and homestead groves) suitable for firewood andconstruction material for the rural subsistence economy. For homestead andvillage forests (as well as for the Sundarbans and inland Sal forests), thePlan would foster the gradual replenishment and upgrading of productive capa-city (through extension services, seedling distribution, afforestation ofavailable wastelands and embankments, etc.), so that their long-term contri-bution to rural fuel and timber supply would gradually increase. However,in view of the serious shortage of firewood, it would appear to be highlydesirable to allocate more administrative, service and financial resourcesto the expansion of this subsector, considering that the benefits could reachmillions of poor rural households relatively quickly.

8.45 In the SFYP, however, priority is given to achieving intensifiedfelling and replanting with faster-maturing varieties in the classified stateforests in the Chittagong Hill Tracts, where socio-economic, technical andsoil-stabilization problems are severe and will require intensive measuresto overcome them. The bulk of wood production from these operations willbe in relatively capital-intensive, large-scale operations aimed primarilyat increasing the supply of high-quality timber to forest-based industrieswhich at present have substantial underutilized capacity. Wastes and low-quality products generated in these operations are to be made available forvillage consumption, although the high transport costs are unlikely to permitthe distribution of these materials beyond a rather limited geographic area.

8.46 In addition, efforts to stabilize newly accreted char land along thecoast through mangrove afforestation are to continue on a more intensivescale, and the output of non-wood tree products (particularly rubber, bamboo,palm oil and mulberries) is to be increased by setting up or expanding exist-ing special plantations. Increasing the production of tree fruits within thevillages will be the responsibility of the villagers, but support is to beprovided through the extension service and through the raising and distribu-tion/sale of suitable seedlings. 1/

Key Policy Issues

8.47 The major emphasis of both the MTFPP and SFYP is on their respectiveinput supply programs, which are spelled out in considerable detail. Whilethis emphasis is on the whole well-placed, there remains the need to preparea similarly detailed and time-phased policy program geared both to implement-ing the medium-term input supply programs and to tackling those fundamentalfarm level and structural problems whose solutions must be found in a longer-run perspective. Neither the MTFPP nor the SFYP directly addresses such issuesas: the country's longer-run comparative advantages in agricultural vis-a-vis

1/ Annex X discusses the forestry sector in more detail.

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industrial development; inter-sectoral terms of trade; linkages between educa-tion and agricultural productivity; income distribution implications of thechosen medium-term strategy; the relationship of the latter to the evolutionof effective domestic demand for rising agricultural production; or therelationship between alternative landholding and tenancy arrangements andagricultural productivity.

8.48 Also missing from both the SFYP and the MTFPP is the specificidentification of policy actions to be taken to: promote the most efficientand equitable targeting of input deliveries; clarify the criteria for expan-sion of the credit program and the development of credit institutions; monitorthe progress of the input supply programs; eliminate obstacles to widespreadaccess to existing productive assets; clarify the respective roles of privatetraders, cooperatives and Gram Sarkars in effecting distribution and market-ing; and to effect the institutional, technical and motivational changesrequired to assure optimal utilization of inputs provided.

8.49 Some of these issues are, however, addressed indirectly or impli-citly, especially insofar as the strategy for agricultural development is setin the context of a broader program for rural development that accounts forsome important linkages. The Plan's emphasis on mass literacy and primaryeducation, for example, cannot be expected to have much short-run impact onagricultural productivity. In the longer run, however, no input is as impor-tant to agricultural productivity as the quality of human capital employed,,and the Plan's intended shift in educational strategy:accounts for this fun-damental fact. General as well as functional farmer education will clearlybe important determinants of the extent to which cultural practices in parti-cular can be improved and productivity thereby raised. By the same token, thequality of the technical, extension, managerial and administrative staff ofthe public sector agencies involved in agricultural and rural developmentneeds significant upgrading. This has been recognized by GOB, and the MTFPPcontains a number of projects designed to bring about improvements in therelevance and quality of extension services, project management, research,information-gathering, and technical training.

8.50 Although the Plan does not propose any direct interference withthe existing pattern of land ownership, the intended development of villagegovernments has potentially profound longer-run implications for the socio-political structure, and in turn for the distribution of access to and controlover productive assets. It is envisaged in the SFYP that land use and employ-ment plans will be formulated by the village governments, which will initiateconsolidation of holdings (if possible under existing laws) and arrange forleasing uncultivated lands. The Plan points to the need for tenancy reformswith a view to providing both greater security to sharecroppers and a sharingof farm output based on contribution to costs; such reforms would have effi-ciency as well as equity objectives. It is not clear from the Plan document,however, which precise measures the Government envisages taking to implementthese reforms. In any event--as in the case of educational reform--theirimpact on the implementation of the SFYP will not be nearly so important astheir impact on longer-run development.

8.51. There are, however, a number of policy issues which bear moreimmediately upon Bangladesh's shorter-run prospects for successfully imple-menting the input supply and utilization programs of the SFYP/MTFPP. Amongthe most important of these are:

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(i) the privatization of input delivery systems and of theownership of irrigation facilities;

(ii) the incidence, size and distribution of scarcity rentsaccruing to public and private monopolies and monopsoniesin the marketing of agricultural inputs and outputs;

(iii) input and output pricing, and the size, structure and inci-dence of subsidies; and

(iv) the choice of technology, particularly with reference tofarm mechanization and employment creation and substitution.

These issues, some of which are closely interrelated, are discussed in thefollowing paragraphs.

8.52 Input Delivery and Asset Privatization. GOB has already taken anumber of constructive steps to increase the participation of the privatesector in the distribution and management of agricultural inputs. These stepsincluded the privatization of fertilizer retailing and wholesaling throughoutmuch of the country and the transfer of pesticide distribution and STW salesto private dealers. They were taken to reduce the management burden on thepublic sector and to mobilize management and financial resources in the pri-vate sector. GOB has correctly recognized that this privatization of inputdelivery and of irrigation facility ownership needs to be continued andexpanded if the requirements of the SFYP/MTFPP are to be met. Accordingly,the decision has been made to sell deep tubewells and low-lift pumps tocooperatives and individual farmers, although the respective roles of coopera-tives and private individuals in such asset distribution and ownership need tobe defined more clearly. It will be important to monitor carefully the actualresponse of the private suppliers. The experience so far in fertilizer dis-tribution and in pesticide sales has been encouraging, but how well theprivate sector can and will perform in the import, manufacture, sale andservicing of minor irrigation equipment remains to be seen.

8.53 Private sector involvement in the processing, storage and marketingof farm output (especially of foodgrains) will also have to be significantlyexpanded. Some steps have been taken in this direction with the easing ofanti-hoarding regulations for grain traders and with the extension of creditto traders for grain storage. But the steps taken so far have been tootentative to permit private traders to function adequately as intermediariesbetween producers and consumers across the country and throughout the year.

8.54 Monopolies and Monopsonies. Further privatization measures willneed to be supported by measures to reduce the prevalence and size of scarcityrents accruing now to local monopolies and monopsonies. Severe market imperfec-tions are rooted in the existing socio-economic structure of rural Bangladesh(land distribution, tenancy terms, patron-client relationships, inequitableaccess to institutional support services, etc.), the distorted structure ofinput and output prices payable to/receivable by farmers, and the poor physicalinfrastructure and high transport costs. The decisions to permit privatetraders to play a larger role in the distribution of agricultural inputs andoutputs and to channel the bulk of agricultural development activities through

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cooperatives are positive steps, especially insofar as they will foster easieraccess to markets and greater competition, whether within the private sectoror between the public and private sectors. Reforms in existing tenancy andsharecropping arrangements would reduce somewhat the monopoly rents of land-owners, while expanded institutional credit would help to reduce the scarcitypremium on credit now provided at very high rates by private moneylenders.The intensification of command area development schemes for minor irrigationfacilities has met with some success and should be continued and broadened,while the mechanisms for output price support to farmers (particularly forfoodgrains and jute) need to be strengthened in a manner that permits allcultivators to benefit from their operation. The policy framework of the Planneeds to be elaborated upon, with specific reference to the instruments to beemployed in pursuit of these ends.

8.55 Input and Output Pricing. To a considerable extent, rural monopoliesand monopsonies are able to persist because the structure of both input andoutput prices in the rural economy encourages uneconomic use of resources.More rational input pricing, for example, would eliminate the scarcity premiacollected by middlemen when input supply falls short of demand. Moving towardsmarket-clearing full-cost pricing for production inputs would also create adisincentive to the underutilization of such inputs. At the same time, itwould reduce the budgetary burden on account of the substantial subsidies onagricultural inputs for-which demand greatly exceeds supply, thereby shiftinga larger share of the burden of agricultural development financing to the pri,-mary beneficiaries of this,development, i.e., the farmers. The.impact ofinput price adjustments on farmers' perceptions of costs and risks and onthe economics of tenant farmers and sharecroppers should be kept under review.

8.56 The rationalization of agricultural input prices must be comple-mented by effective incentive output pricing. There are three major issuesinvolved in output price policy:

(i) the wide seasonal fluctuations 1/ of output prices (espe-cially for foodgrains) which need to be dampened in orderto stabilize farmers' post-harvest returns (and therebytheir production incentives) and consumers' access to basicagricultural produce throughout the year;

(ii) the often disruptive price fluctuations from year to year,which should be reduced in order to stabilize these mar-kets; 2/ and

(iii) the possibility/probability of effective demand constraintsin the longe'r run. Agricultural producers need to be assuredthat risk-taking (i.e., investing in modern inputs) will berewarded by substantial returns.

1/ The often wide regional differences in prices also indicate severe mar-ket imperfections, and private traders need to be encouraged to stepin and balance regional supply and demand more effectively in the inte-rest of both producers and consumers.

2/ This is particularly crucial for raw jute as described in Chapter 2.

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8.57 To ensure that the farmers themselves receive an appropriately highshare of the benefits, the market mechanisms for distributing agriculturaloutput need to be strengthened greatly, so that the private trade sector canbetter serve as the institutional link between producers and consumers ofagricultural products. This will require both the immediate relaxation andgradual elimination of legislative and administrative restrictions on tradeand a determined effort to provide better physical infrastructure (roads,markets, storage facilities) and/or credit facilities to enable the privatesector to create such facilities itself. By themselves, however, thesemeasures are unlikely in the short run to lead to significantly improved farm-gate prices, particularly for the many small farmers who sell part or all oftheir crops immediately after the harvest in order to pay off debts incurredearlier. Farmgate prices will always reflect, inter alia, what consumers arewilling and able to pay, and since in Bangladesh the incomes and purchasingpower of the vast majority of the population are extremely low, this esta-blishes a restrictive ceiling on overall effective demand for consumer goodsand, thus, on farmgate prices.

8.58 Effective Demand. The longer-run strategy to overcome this problemwill have to be one that raises the overall income and purchasing power ofthe rural population by creating employment opportunities outside the tradi-tional agriculture and rural services sectors. In the short run, however,alternative measures may need to be taken to inject additional effectivedemand for agricultural products--particularly for foodgrains--into the mar-ket. This issue has been raised above in Chapter 7, paras. 7.22-7.23. Thetwo basic measures that can be taken are: (i) substantial Government involve-ment in the post-harvest purchasing of farm produce (at guaranteed incentiveprices), balanced by subsequent release of the quantities purchased into thedomestic market when seasonal scarcity begins to push consumer prices aboveequitable levels, or (ii) exports of the agricultural output for which domes-tic demand is lagging and for which foreign buyers can be found.

8.59 Government purchases of foodgrains at harvest time (to support farm-gate prices at incentive levels) and subsequent sales of Government stocks inthe open market (to help reduce seasonal supply shortages and excessive con-sumer price increases) are clearly the most desirable and effective instru-ments to stabilize both supply and prices simultaneously from season to seasonand to stimulate both increased output and increased demand in the longerterm. This would further add to overall effective demand to the extent thatGovernment releases of stockpiled grains are targeted effectively at the low-income groups (e.g., in the form of expanded Food-for-Work or other ruralworks programs). The benefits of such a policy would include:

(i) provision of output price support to foodgrain producers byinjecting additional effective demand into the market whensupply normally exceeds demand (and on-farm storage capa-city) by a substantial margin;

(ii) partial alleviation of rural unemployment, directly throughrural works programs financed in kind and indirectly throughthe provision of price incentives for additional farm pro-duction;

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(iii) improvement of consumer welfare by preventing lean-seasonfoodgrain prices in the open market from rising abovelevels at which substantial segments of the populationcan no longer afford to purchase grains;

(iv) conversion of wage goods into capital formation in ruralinfrastructure facilities; and

(v) prov-ision of part of the nutritional needs of the ruralpoor who would participate in these works programs.

These benefits would obviously need to be weighed carefully against theirfinancial costs, particularly with respect to expansion of the Food-for-Workprogram.

8.60 The export option, on the other hand, could be financially attrac-tive and desirable--especially if rice exports were used to finance lower-cost wheat imports and to generate additional foreign exchange income fordevelopment financing. This option is likely to remain a difficult one topursue for most Bangladesh agricultural products for some time to come, how-ever, given the potential difficulties in procuring sufficient quantities ofacceptable quality, in transporting such quantities to the ports and in ship-ping them to foreign consumers.

8.61 - -Draft- Power and Farm Mechanization. The severe-shortage -of animal-:draft power, already a serious problem, could potentially threaten therealization of the crop production targets of the- SFYP unless remedial actionis taken soon. At present, the draft power shortage may be as high as 50%during the peak ploughing season in March/April (if measured against the agro-nomically required land preparation standards). The causes of this shortageinclude: the shortage of draft animals and their generally poor condition;the severe scarcity of fodder; the inefficiency of commonly used ploughs; thehighly peaked seasonality of land preparation; the increase in cropping inten-sities; and the high photo-sensitivity of most of Bangladesh's traditionalcrops. Mechanical land preparation, with tractors or power tillers, is vir-tually unknown in the villages. Investment and operating costs for powerequipment are out of reach for most farmers, technical know-how for propermaintenance is scarce, farm and plot sizes are extremely small, and the supplyof fuel and spare parts is unreliable. (Experiments have been conducted, how-ever, showing that there may be considerable overcultivation for certain cropsby Bangladeshi farmers, especially for wheat. Some savings in draft power maytherefore be effected through more efficient cultivation practices.)

8.62 The planners have identified the need for direct measures to improvethe health and strength of draft animals and have outlined some programs toaddress these problems. These include efforts to increase the supply of fodderand feed, to expand and improve preventive and curative veterinary care, andto upgrade the genetic quality of the national cattle herd through cross-breeding with imported bulls and extension of artificial insemination services.Although these measures will be essential, they will not by themselves solvethe draft power shortage problem, which will intensify as cropping intensity,tillage requirements and the shift to HVY technology increase over the SFYPperiod.

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8.63 The single most effective measure to overcome the draft powershortage would be the development, mass production, and widespread distribu-tion of greatly improved ploughs--light enough to be drawn by the availableanimals, yet efficient enough to permit a drastic reduction in the number ofploughings required. Such ploughs are available in Bangladesh, but theiradoption by farmers has been very limited. Their supply is small, purchasecosts and maintenance expenditures are comparatively high, and certain modi-fications in design (to permit variations in ploughing depth) are needed tomake these ploughs more widely acceptable to farmers. Such R&D work as isbeing undertaken in this field should be intensified. Other suggested mea-sures would include field testing and demonstration in the villages of proto-type models, distribution of successful models to capable rural workshops andsmall-scale industries for immediate mass production, and credit for manufac-turers and purchasers of the new ploughs to be made available through ruralbanks and cooperatives. Similar programs could be initiated for the develop-ment of other essential farm implements, particularly those required for landpreparation. If the widespread adoption of improved ploughs were to reduce thenumber of ploughings required from the present 6-8 times to 2-3 times only,the draft power problem of Bangladesh agriculture would be solved in largemeasure for the foreseeable future, even with the increase in cropping inten-sity and the further shortening of land preparation times between cropsenvisaged under the SFYP and the MTFPP. Furthermore, as noted above, thereis scope for reducing the tillage rate for certain crops even with existingploughs.

8.64 The alternative to actions for improving the strength of the animalsand replacing traditional country ploughs would be substantial mechanizationof farm activities, particularly of land preparation. In view of the extremelyhigh rates of under- and unemployment, however, labor-displacing farm mechani-zation would exacerbate the problems of poverty, inequitable income distributionand malnutrition. At the same time, there are some farm activities (irrigationbeing an obvious case in point) where some mechanization will be needed to raiseproductivity and where it may actually increase the demand for labor. Moreover,on larger farms the seasonal demand for labor may exceed the available supplyand may necessitate at least partial mechanization of land preparation andharvesting to permit full utilization of productive capacity.

8.65 There is, however, the potential danger, implicit in the crop produc-tion strategy adopted under the SFYP/MTFPP, that farm mechanization may occuron a relatively large scale, i.e., at a rate in excess of what would be desir-able and in a manner detrimental to objectives of rural equity. To preventthis, specific policy measures would need to be formulated and implemented.One possibility would be a policy of channelling the supply of power tillersto and through cooperatives, or the creation of machinery cooperatives oflandless laborers (similar to pilot schemes for organizing landless cooperativesto own and operate irrigation pumps and to sell water and other farm servicesto surrounding farmers). The sale of such power equipment to cooperativescould be tied to the achievement of certain performance criteria within thecooperatives, e.g., the attainment of a particular irrigation coverage and aminimum degree of plot consolidation, in order to encourage efforts to improveagricultural productivity, group cohesion and optimal utilization of produc-tive assets.

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CHAPTER 9: INDUSTRY 1/

Introduction

9.01 Bangladesh's manufacturing sector currently accounts for only 8%of GDP. The present industrial sector was built up largely during the Dre-independence period, when industry received some 28% of total investment.However, many of the policies then used to foster industrialization (e.g.an overvalued exchange rate and high tariff barriers) led to serious distor-tions in the sector's development, especially in the late 1960s. Followingindependence, the Government nationalized about 85% of the capital assets inthe sector. In the early 1970s, there was a marked deterioration in capacityutilization and labor productivity as a result of poor management, the lossof markets, and shortages of raw materials. At the same time, the privatesector--hampered by bureaucratic controls and restrictions--was almost mori-bund and displayed an unwillingness to invest in industry. 2/

9.02 From FY75 onwards, the Government has progressively redefined itsapproach to industrial development. Two of its central objectives have beento increase the participation of private investors-in industry and to-improveoperational efficiency and productivity-in-existing public sector enterprises.Some measure--of success has b-een achieved in botth these areas.- Private invest-ment has grown rapidly over the past five years, rising (in current prices)from Tk 198 million in FY76 to Tk 1.2 billion in FY80. -Private sector outputin the medium and large scale n.&nufacturing sector has grown by 8% per annumin real terms. The resurgence of private activity in manufacturing can beattributed to several factors. The liberalization of the foreign exchangesituation over the past five years has ensured that imported raw materialshave been made available to the private sector. Furthermore, as the scarcitypremia on imported goods have declined, the relative profitability of manu-facturing vis-a-vis trading has improved. Government policies have also playeda major role in broadening the scope for private activity. Financial limitson the size of individual projects in the private sector have been increased,and the list of sectors eligible for private investment has been expanded.For example, the Government has recently announced the intention to allowprivate investment in cotton textiles. Investment approval procedures havebeen simplified and the two major development financing institutions (DFCs)have increased substantially the availability of term financing to the privatesector. The policy environment surrounding the private sector does, of course,need to be improved further. Investment approval procedures remain excessivelycumbersome, and some Government procedures still tend to allow public enter-prises advantages not granted to the private sector (e.g., in the allocationof import licenses).

1/ "Industry" in this section refers exclusively to the manufacturing sector,inclusive of the very small mining subsector.

2/ For an extensive analysis of the problems facing the industrial sectorand the policies necessary to effect improvements see Bangladesh: Issuesand Prospects for Industrial Development (in two volumes) IBRD ReportNo. 2191-BD, December 8, 1978.

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9.03 Within the public sector, action programs to improve productionplanning maintenance, and management have been initiated in the two largestsubsectors, jute and cotton textiles. These have resulted in some improvementsin the operational efficiency of mills in these sectors. Overall capacityutilization has also improved in recent years, although in certain sectors, itremains quite low. But, little progress has been achieved in a major aspectof industrial development policy, namely, in the planning of public industrialinvestment. The level of public industrial investment was roughly threefold-that of private investment in FY80. It has however been dominated by a smallnumber of large-scale, long-gestation projects in the fertilizer and engineer-ing sectors. Over 65% of total public industrial investment in the periodFY76-80 was concentrated in five major import-substitution projects: theAshuganj Fertilizer Factory, the Bangladesh Machine Tools Factory (BMTF), theChittagong Drydock and Heavy Steel Structure, the General Electric Manufactur-ing Plant, and the Insulator and Sanitary Ware Factory. Some of these invest-ments, particularly those in the engineering sector, were poorly conceived andresulted in an enormous waste of investible resources. The high proportionof resources committed to large-scale projects has also meant that many long-needed investments for balancing, modernization, and rehabilitation (BMR) toimprove capacity utilization and productivity within existing plants have beenunduly postponed. However, some progress has been made over the past two yearsin redressing this imbalance, and major BMR programs are being implemented inthe jute, textiles, fertilizer and paper industries.

9.04 The pattern of industrial investment, both public and private,is still oriented excessively towards the domestic market. Non-traditionalexports (i.e. exports other than jute and tea) account for only 28% of totalexports. Although earnings from this group of exports has grown rapidly inrecent years, this was mainly due to favorable price changes. Increases involume have been relatively small as a result of inadequate incentives andinsufficient investment in export-oriented sectors.

9.05 Industrial policy has therefore been characterized by a dichotomy.On the one hand, there has been a progressive improvement in the policyenvironment for the private sector and increased attention to operationalefficiency within existing public enterprises. On the other hand, a largepart of the public investment program in industry has neither been gearedto raising productivity nor consistent with the long-run comparative advan-tage of Bangladesh.

9.06 It is against this backdrop that the SFYP has been issued. TheSFYP is not a policy-oriented document, nor does it define a coherent indus-trial strategy for Bangladesh. Rather, it consists of specific investmentplans and projects for the various subsectors within the public sector, andit sets out indicative targets for the level and composition of privateinvestment.

9.07 In designing the SFYP's public investment program, the plannershave had three major concerns: to meet the consumption needs of the bulkof the population; to support the rural development effort; and to utilizethe country's natural gas reserves. The resultant public investment program

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is, however, oriented almost totally towards the domestic market, and itincludes some highly capital-intensive projects whose economic profitabilityis suspect. The program would also be very intensive in its use of foreign

exchange, relative to the prospective foreign exchange earnings and savingslikely to result from it. In these important respects, it is questionablewhether the proposed investment program is fully appropriate to the needs ofBangladesh and whether, in view of its impact on the balance of payments, it

would be sustainable without high rates of growth of commodity aid continuingbeyond the SFYP period. At the least, this dependence would make the utili-zation of capacity highly vulnerable to changes in the availability ofcommodity aid.

9.08 The deficiencies of the public investment program originate fromtwo sources. First, the ambitious size of the intended program has meantthat critical decisions regarding relative priorities (which will need to be

established in the face of limited resources) have been postponed. Second,the Government has faced enormous difficulties in translating the Plan'sseemingly-laudable objectives into a set of economically-profitable proJectsthat reflect the country's long-run comparative advantages. This in turncan be attributed partly to the declining opportunities for import substitu-tion that stem from the small ef-fective size of the domestic market. Thisis not to say that all, or even most, of the prospective public investmentsare misdirected. But a considerable-number, particularly in the intermedriategoods sector, are only tangentially related to the Government's pronouncedobjectives or seem likely to achieve those obiectives only at excessive costin terms of both capital and foreign exchange. Specific examples are citedbelow.

9.09 These factors point to the need for a reorientation of the pattern

of industrial investment, particularly in medium-and large-scale industry,towards a more outward-looking strategy, where economic efficiency criteriaplay a paramount role in determining investment choices. The major policies

necessary to effect such a transformation are twofold. First, with the publicsector accounting for some 75% of industrial investment, industrial planningprocedures in the public sector must be improved. Second, the incentivestructure that determines both the pattern of private investment for thedomestic market and the profitability of exports will need to be rationalized.

9.10 Preliminary steps towards the rationalization of incentives are

being taken. Export promotion policies have received greater attention, anExport Processing Zone is being established in Chittagong and the level of

export incentives has recently been increased. Initial studies necessary fora long-term program of reform in the structure of incentives--including the

tariff structure, the system of fiscal incentives, and export incentives--are

currently the subject of discussions between IDA and the Government. Some ofthe policies necessary to encourage an efficient pattern of industrial growthand to lay foundations for an improved balance of payments position are analyzed

in Annex I. The remainder of this chapter will assess in greater detail theindustrial investment program outlined in the SFYP.

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Sectoral Objectives and Targets

9.11 The stated principal objectives of industrial development as setforth in the Second Five-Year Plan may be summarized as follows:

(a) Expand the domestic production of essential "basic needs" andmass consumption commodities;

(b) Provide for the domestic manufacture of inputs necessary toachieve major Plan targets in other sectors, including self-sufficiency in foodgrains and the spread of rural electrifi-cation;

(c) Maximize the use of local raw materials and natural resources;

(d) Create wider employment opportunities and promote balancedregional development through the promotion of small-scale,labor-intensive rural industries; and

(e) Improve the balance of payments position by accelerating thegrowth of export-oriented and import-substituting industries.

9.12 Within the overall framework of the Plan, the manufacturing sectoris not expected to be a leading sector of the economy. Rather, the patternof industrial growth envisaged is, for the most part, derived from the linkagesbetween industry and other major sectors of the economy. A corollary of thisemphasis on linkages is that the SFYP industrial investment program, partic-ularly with respect to the public sector, is oriented predominantly towardsimport-substitution investments for the domestic market.

9.13. In order to meet the Plan's physical output targets 1/ and achievethe projected average annual growth rate of 8.6% in industrial value added,the Government envisages that a total outlay for industry of Tk 43.8 billion 2/(17% of total development outlays) will be required over the SFYP period.The public sector will continue to play the major role in industrial develop-ment. Development expenditure by public sector agencies is projected atTk 32.7 billion, implying an average growth of 25% per annum in real terms.Private investment is expected to grow at a similarly fast rate and amountto Tk 11.1 billion for the SFYP period as a whole. Table 9.1 below showsthe anticipated distribution of investment during the Plan period among

1/ Several of the principal sectoral output targets were indicated in Table7.1 in Chapter 7.

2/ In FY80 prices. All values referring to Plan targets are expressed inFY80 prices unless otherwise indicated.

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ongoing, 1/ rehabilitation, and new projects and between large and medium-scaleindustries and the small-scale sector.

Table 9.1: SFYP ALLOCATIONS FOR INDUSTRY(in Tk billion at FY80 prices)

FY81-85 Percent ofSector/Scale Allocation Sectoral Allocation

Public Sector, total 32.7 74.7Large-and medium-scale 32.0 73.1

of which: ongoing projects (11.6) (26.5)BMR projects (4.3) (9.8)New projects (16.1) (36.8)

Small- and cottage industries 0.7 1.6

Private Sector, total 11.1 25.3Large-and medium-scale 6.1 13.9Small-and cottage industries 5.0 11.4

TOTAL 43.8 100.0

Source: SFYP

9.14 The Government envisages that the pattern of private sector inves-t-ment will be one of considerable and growing diversification--in contrast to,its past and present concentration in food and textiles. In addition, itis counting upon the private sector to play a critical role in the developmentof manufactured goods exports. Public sector exports of manufactured goodsare only expected to rise from Tk 7.1 billion in FY80 to Tk 7.9 billion inFY85, a real increase of only 2.2% per annum, and these will continue to beoverwhelmingly dominated by jute goods. Private sector manufactured exports,in contrast, are targeted to increase from Tk 2.7 billion to Tk 5.9 billionover the next five years and over 85% of this increase is anticipated to emergein three sectors: cotton textiles (including ready made garments), fisheriesproducts, and leather.

1/ While ongoing projects account for 26.5% of the total Plan allocation forindustry, this figure is somewhat misleading since it includes allocationsof 1.4 billion for the Ashuganj plant (which will be completed this year)and of Tk 7.2 billion for the Chittagong Urea Factory and the JaipurhatLimestone Mine, both of which are in the early stages of project prepara-tion. This indicates that the Government has largely accomplished itsgoal during the Two-Year Plan of completing the backlog of ongoingprojects in the industrial sector. It therefore begins the SFYP periodwith much greater flexibility in its choice of projects than at any timeover the past five years.

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Public Sector Investment Allocations

9.15 More than 80% of the allocation for public sector industrial invest-ment is concentrated in four sectors: cotton textiles; steel and engineering,chemicals, and cement. Within the cotton textile sector, investments are tobe concentrated on the modernization and rehabilitation of existing plant andfor the expansion of spinning capacity. The allocation for the cement sectoris dominated by a single project, the Jaipurhat Limestone Mine, and the complexassociated with it.

9.16 The investment programs for the other two major sectors, chemicalsand steel and engineering (which together comprise over 55% of total publicsector industrial plan allocations) cannot be summarized so succintly. Thisstems in part from the more heterogeneous output structure of these sectorsand in part from difficulties faced by the Government in translating the broadobjectives underlying the SFYP into a coherent investment program. Within thechemical sector, investment allocations for the fertilizer industry (specific-ally the construction of additional capacity for some 700,000 tons of ureaproduction per annum) comprise over 75% of the total subsectoral allocation.A variety of other relatively large, import-substituting projects has alsobeen included in the Plan portfolio, including investments for the productionof PVC (based on natural gas), polyester and rayon fibre, and pulp and paper(from jute cuttings and sticks). While the total cost of the intended invest-ments for PVC and polyester production is estimated at some Tk 4.4 billion,an initial allocation of only Tk 704 million has been included within thePlan.

9.17 The total allocation for public sector investment in steel and mech-anical engineering is Tk 7.7 billion. Of this, roughly Tk 1.4 billion willbe for the modernization, rehabilitation and expansion of existing factories,including the Chittagong Steel Mills, the Bangladesh Diesel Plant, and anumber of smaller enterprises in the iron and steel subsector. A furtherTk 1.7 billion has been allocated for workshops and manufacturing facilitiesin the light-engineering sector to produce and repair agricultural implementsas well as mass consumption items and consumer durables such as bicycles.It is anticipated that the workshops, once established, will be divested tothe private sector. Finally, roughly Tk 2.4 billion has been allocated forlarge-scale investments in both ferrous and non-ferrous metal industries.These include a sponge iron complex (total cost estimated at Tk 4.5 billionbut allocated only Tk 650 million) and a Steel Strip Plant (total cost esti-mated at Tk 2 billion but allocated only Tk 300 million).

Appraisal of the Public Sector Investment Program

9.18 The prospective pattern of public investment, is presented in Table9.2 below. Over 50% of public industrial investment in the Plan is destinedfor highly capital-intensive industries, including gas-based or import-substituting investments in the steel and non-ferrous metal sectors, syntheticfiber production, and cement production. Many of these investments are alsocharacterized by their large scale and long gestation periods. This is par-ticularly the case in natural gas-based investments (including two fertilizer

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projects, PVC production, and the sponge iron complex), but is also true of

other import-substituting investments (steel strip and cement production).Of the remaining 50% of public industrial investment allocations, roughly halfis for the further expansion of light industry and roughly one quarter each

for rehabilitation projects and for research and support to the private sector.

Table 9.2: PATTERN OF PUBLIC SECTOR INVESTMENT ALLOCATIONS /a(In Tk billion at FY80 prices)

SFYP % of SFYPTotal Cost Allocation Allocation

Balancing, modernization andrehabilitation /b 4.30 4.29 13.6

Export industries 0.45 0.LZ5 1.4"Basic Needs" industry /c 4.30 4.30 13.6Agricultural processing 2.03 1.82 5.8Import-substituting industries 10.81 7.95 25.2Natural gas-based industries 16.05 8.60 27.3Research, support to private

sector (SSI), other 4.10 4.10 13.0

TOTAL 42.04 31.51 100.0

/a Excluding Tk 1.24 billion of anticipated investment in JamalvanjCoal Mine and Ranipukur Hardrock Mine, which are classified in

the mining sector./b Some BMR projects also include provisions for plant expansion.

Allocations for BMR therefore somewhat overstate actual expendi-

ture on rehabilitation and modernization./c "Basic needs" refers to investments for certain mass consumption

items such as textiles and bicycles or for certain small-scaleinvestments in the light engineering sector to provide produc-tion and repair facilities in rural areas for agricultural imple-ments. This category should be conceived of as a special caseof import-substituting investments.

Source: IDA classification based on SFYP.

9.19 The Government envisages substantial improvement in the efficiencyof industrial investment (as reflected in the capital/output ratio) during

the forthcoming five years. If the intended improvements are to be achieved,

emphasis must be given to Policies to improve capacity utilization in exist-ing industries. In certain sectors (e.g. paper and pulp), where the quality

of the capital stock has been allowed to deteriorate by delaying expenditures

for maintenance and rehabilitation, BMR programs warrant first priority; thereis ample evidence to indicate that such programs offer high returns for

relatively low capital expenditures. In other sectors (most notably the

mechanical engineering sector), poor capacity utilization originates from

inadequate project preparation and deficient market analysis, reflected by

enormous disparities within product groups between the structure of demand

and the composition of output. In such sectors, there is a need to undertake

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adjustments in equipment and plant layout so as to realign output with thestructure of existing and future demand.

9.20 The priority accorded to BMR programs and to expanding the supply

of "basic needs" and mass consumption items (such as cloth and bicycles) is

on the whole appropriate in view of both the country's needs and comparative

advantages. It should be recognized, however, that many of the Plan's massconsumption targets (e.g. 12 yds per capita of cloth consumption annually) are

based on the presumption of a substantial shift in the distribution of incometowards the poorer segments of the population, which in turn would generatesufficient effective demand for these goods. But it is doubtful that such a

shift will occur, at least in the short-run, as neither the income nor employ-

ment effects of the prospective pattern of near-term agricultural development

appear likely to be adequate to generate the necessary demand for all the"basic needs" commodities specified in the Plan. 1/

9.21 The rationale underlying the pattern of industrial growth and invest-ment projected for the intermediate goods sector has been conceived primarily

with the intent to foster closer linkages between manufacturing and other

sectors of the economy. Such linkages provide a useful preliminary guide toidentifying investment opportunities. But this criterion has been allowed to

dominate the choice of projects in the intermediate goods sector. As a result,

there has been relatively less concern with the maximization of domestic value-added. While value-added in manufacturing is targeted to grow at 8% per annum

in real terms, the planners estimate that recurrent foreign exchange require-ments for needed imported inputs will grow from Tk 10.7 billion in FY80 to

Tk 24.6 billion in FY85, an increase of some 18% per annum in real terms.

Thus, the pattern of industrial growth charted in the Plan would be highly

intensive in the use of foreign exchange--particularly in the chemicals and

steel and engineering sectors whose foreign exchange requirements are expectedto increase two-and-a-half times over the next five years, from some Tk 7billion in FY80 to Tk 17.5 billion per annum in FY85. It therefore seemsimperative that the Government should reassess whether such a pattern ofindustrial growth is sustainable in the light of probable medium-term resource

availabilities.

9.22 There also appears to have been inadequate consideration of the realcosts (in terms of domestic resources) or of the real benefits (in terms ofnet foreign exchange savings) involved in the production of items with signifi-

cant linkages to other sectors. A review of selected public sector projectsin the met'als-,' chemicals and cement sectors suggests that two factors will becritical in determining the economic profitability of the proposed investments:(i) the share of domestic value added in the total value of the finished pro-

duct; and (ii) the extent to which the size of the domestic market allowseconomies of scale to be realized. For certain investments, such as in ureaproduction, the prerequisites for efficient production are available. But

other investments (e.g., in polyester, PVC, and the Chittagong Dry Dock) seem

1/ The issues of employment generatiion and "effective demand" are discussedin Annexes III and IV, respectively.

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unlikely to be able to achieve either the share of domestic value added or the

levels of scale and capacity utilization necessary for efficient production.

9.23 A further concern about the Plan's industrial strategy relates tothe phasing of large-scale, gas-based investments over the Plan period andbeyond. The availability of natural gas reserves are large in relation toprojected domestic consumption and would appear to allow for economic produc-tioh of a variety of gas-based products (including urea, certain types ofpetrochemicals and sponge iron). Such investments, however, will require verylarge expenditures (US$200 million or more per project in the case of severalproposed projects) in relation to the financial resources likely to be avail-able. The Government must therefore be extremely careful in ascertaining howmany such relatively large-scale, long-gestation projects can be managed andfinanced at any one time. The appropriate choices will depend, inter alia,on both the extent of available foreign financing and the fungibility ofsuch financing. In any event, there is a serious danger that commitments totoo many such projects would deprive other sectors of resources required forpriority investments, and at the same time lead to a scarcity of resourcesfor the large-scale projects themselves, thereby increasing the gestation lagof each. A rough assessment of resource availabilities and competing prior-ities (based on the assumption that donors finance some 60% of total,costs)suggests that Bangladesh can sustain no more than two or possibly three suchprojects at any one time.

Policies Towards the Private Sector

9.24 The Plan projects that private investment will grow at about 25%per annum over the next five years. This is clearly an ambitious target butone which could be feasible if sufficient credit is made available and measuresto diversify the pattern of private investment (through reforms in the incen-tive system) are implemented.

9.25 As of June 1980, outstanding (undisbursed) loan commitments by thecountry's two major development banks (BSB and BSRS) to the private sectorstood at roughly Tk 3 billion, of which 80% was in the manufacturing sector.Since BSB and BSRS on average finance 60% of total investment costs, outstand-ing investments on projects financed by these institutions amount to some Tk 4billion--equivalent to about 30% of the SFYP target for private investmentin industry. 1/ Bangladesh is emerging into a situation where the primaryconstraint on private investment levels is likely to be the extent of finan-cial resources that can be made available--both for investment and workingcapital--rather than an unwillingness on the part of the private sector toinvest in manufacturing. It is already apparent that both BSB and BSRS willrequire substantial new infusions of financial resources in order to satisfythe growing demand.

1/ This calculation takes into account the consideration that the develop-ment banks' commitments include provisions for price contingencies whereasthe SFYP financing is expressed in constant FY80 prices.

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9.26 Efforts to mobilize additional private savings through financialinstitutions will clearly be important in this context. Moreover, the publicsector must not be allowed to pre-empt the financial resources so mobilizedto the extent that it has in recent years. A substantial portion of privatesavings is currently channelled to the public sector through the banking system.While private sector deposits and currency holdings comprise over 60% of theliabilities of the banking system, claims on the private sector have accountedfor only 35% of total domestic credit in recent years. A resource transferof this magnitude (over Tk 2 billion per annum) cannot be sustained if privateinvestment targets in manufacturing and other sectors are to be achieved.

9.27 The intention of Government policy during the past several years hasbeen to increase the level of private investment in manufacturing through acombination of exhortation, some liberalization of controls and restrictions,and fiscal incentives; the subsectoral and geographic allocations and thesocial profitability of such investments have remained of secondary concern.The highly-differentiated tariff structure encourages domestic production of"luxury" consumer goods and other highly dutiable items but creates few incen-tives to enlarge the proportion of domestic value added in the manufacture ofthese commodities. At the same time, the overvalued exchange rate has createda strong bias against exports and the domestic production of machinery andother producer goods. Thus, the present incentive structure is in dire needof reappraisal and rationalization. Annex I provides a fuller analysis of theexisting tariff structure, the distortions therein, the consequences of thosedistortions, and of ways in which the Government may act to rationalize thetariff structure.

9.28 Bangladesh's tariff structure has become severely distorted, mainlybecause tariff policy has been made on an ad hoc basis and in pursuit of anumber of conflicting objectives. For example, low tariffs on imports ofmachinery are designed to encourage private investment, but have resulted ina bias against the domestic production of producer goods--in contradiction tothe Government's avowed aim to expand the domestic production of machinery.The number of objectives required of the tariff system should therefore bereduced. The import duty system should, as far as possible, be designedprimarily with a view to providing a more rational structure of protectionfor domestic industry, i.e. one that is less discriminatory than at presentand in which differentials in protection more closely reflect the degree ofdomestic value added. Where high duty rates are imposed for equity reasons(e.g. to tax the consumption of imported "luxury" goods), taxes on the domesticoutput of such consumer goods will be required, so as not to create excessiveprotection in these sectors. Conversely, tariffs on machinery and other lowdutiable items will need to be raised if the bias against domestic productionof such goods is to be reduced.

Export Policies

9.29 A major lacuna in the SFYP strategy with respect to both the publicand the private sectors is in the development of export industries. The prob-lem is not so much that the specific targets set for non-traditional manufac-tured exports are misguided or inappropriate. Such targets are in any eventonly indicative insofar as the private sector is to play the major role in

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their attainment. Moreover, since many of the existing "non-traditional"exports are based on domestic raw materials where supply inelasticities aresignificant (e.g., leather), or where public infrastructure facilities willbe important (e.g., fisheries), there are limits to the growth that can beanticipated over the medium term. Rather, the main problem is that the wholeindustrial Plan is excessively "inward-looking".

9.30 The Government has in fact begun to recognize the need for reorientingthe pattern of industrial investment. Following publication of the draft Plan,a revised export strategy was formulated which proposes both higher exporttargets for the private sector and large-scale, gas-based exports for the publicsector. As noted above, the latter offer significant export opportunities, al-though resource, technical, and absorptive capacity constraints will limit thepace at which the necessary investments can be implemented. Nevertheless, thereremains an inadequate appreciation within Government of the extent to whichincentives will have to be restructured if private sector investment is tobe channelled in any significant degree into labor-intensive export-orientedindustries. For manufactured exports of LDCs in the early stages of exportgrowth, imported inputs typically account for 60-75% of total costs. Theexport incentives required in Bangladesh merely to offset the existing biasagainst such exports (arising from existing tariffs on inputs and from theeffects of an overvalued exchange rate)-amount to between 40% and 60% of grossexport values.

9.31 Increased export incentives in the form of premia available underthe Export Earners Scheme (EES) and well-designed and effectively-implementedmechanisms for rebating tariffs and taxes on inputs could, in theory, providethe necessary incentives. In practice, however, present procedures for grant-ing such rebates have proved ineffectual due to administrative delays; hence,the actual incentive rate is only about 15-20%. The Government should there-fore move quickly to adopt measures to increase substantially the level ofexport incentives, whether through direct subsidies or measures to raise EESpremium, or some combination thereof. Attention should also be given to stream-lining the process of granting tariff rebates and to making the procedures asautomatic as possible.

The Strategy for Small-Scale and Cottage Industry

9.32 Outside agriculture, small and cottage industries (SCIs) promiseto be a main source of labor absorption; the SFYP anticipates that some 300-400,000 additional jobs can be generated in the SCIs during FY81-85. The SCIsector has been stagnant over the last decade, its contribution to GDP havingdeclined from 3.2% in FY70 to 2.8% in FY78. The acceleration of growth inthe SCI sector will be largely contingent upon the progress of agriculturaldevelopment and the effectiveness of the measures adopted for the promotionof subcontracting and exports of small and cottage industries products.Rising agricultural incomes will increase the demand for agricultural imple-ments and tools, machinery, spares, and processing services. Rapid agricul-tural growth would also have multiplier effects on the SCI sector throughincreasing the demand for consumption goods and services which may be producedby the SCI sector.

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9.33 A sharp increase is envisaged in private investment in the SCIsector. Total private investment in SCIs during the SFYP as a whole istargeted at Tk 5 billion, or some 45% of total private investment in manu-facturing. The Government recognizes that in order to realize this target,SCIs will need much greater access to credit and technical and marketingservices. GOB's strategy during the SFYP is to concentrate on improvingthe services provided to SCIs through public institutions, both financialand technical. The Plan allocation to the Bangladesh Small and CottageIndustries Corporation (BSCIC) and Development Boards is Tk 750 million(not including credit), compared to an allocation of Tk 40 million in FY80.In addition, the Plan proposes further public sector investments in supportof private sector development in the amount of Tk 1.5 billion, to be financedthrough allocations of other (unspecified) agencies.

9.34 The Government's strategy for the development of small and cottageindustries is to concentrate on improving the services provided by publicsector institutions, rather than to rely on differential incentives or con-trols. Existing institutions are weak and considerable improvements in theirorganizational, managerial and technical capacities will be required. More-over, the coverage of services, which heretofore has focussed mainly on urbanindustries, must be widened to reach rural enterprises. The mechanisms andinstitutions for providing credit, technology, and skills training to theSCI sector will be particularly important for the success of the SFYP targetsin this sector. Financial institutions currently provide only a minor portionof the SCI's financing needs, and the willingness and ability of these insti-tutions to finance growing SCI investments will have to be increased substan-tially. Furthermore, the development of rural industries would require aninstitutional thrust to reach out to these industries and provide improvedtechnology, training in skills, and marketing assistance complemented bynecessary credit.

9.35 The Government is aware of these problems and has already initiatedseveral measures aimed at promoting and assisting viable small-scale indus-tries (SSIs). For example, selected commercial banks and BSB, which havealready demonstrated the capacity to lend to SSIs, have now been given fullresponsibility for selection, appraisal, supervision and collection of SSIloans. BSCIC's promotion and technical extension services for SCIs arebeing strengthened through a major decentralization of staff and decision-

making, intensive staff training, implementation of product-specific techni-cal service schemes, the launching of a subcontracting exchange, and throughtapping private sector knowhow in pilot projects to diversify the productrange and improve production processes in SSIs.

9.36 During the SFYP period, the Government also intends to establish an

Export and Product Development Fund for light industrial and handicraft pro-ducts. This Fund, which will have its own staffing, policies and procedures,will assist exporters through the financing of product-specific consultancy,sales trips, and exposure to neighboring countries which have successfulexporters in similar lines. The establishment of this Fund reflects therecognition that exporters are the entrepreneurs and organizers of the decen-tralized production base, and that with assistance, they can expand exportsand employment in handicrafts and light industrial products. Banglacraft,

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a private organization of the major handicraft exporters, is actively involvedin developing an action program for this Fund.

9.37 Another new initiative will be the implementation of a pilot projectin which the Integrated Rural Development Program (IRDP) and selected thana-level cooperatives will be the implementing organizations for developing agro-related activities as a source of supplementary income for landless andmarginal farm families and women's groups. Major activities will be beekeeping,small livestock, fish ponds and small-scale agro-processing activities. Thesehave been selected since they require limited capital and skills and havestrong local markets. GOB also intends to conduct a major study of the poten-tial for rural enterprise development. This study is expected to generateproject profiles as well as recommendations on a set of institutional arrange-ments for promoting and assisting viable rural enterprise activities.

9.38 A number of small entrepreneurs, particularly in the small engineer-ing industry, are now involved in the production and servicing of agriculturalimplements, pumps, transport equipment, and spare parts of various types; theseneed the encouragement and direct attention of the Government. Over 3,000mechanical workshops, concentrated in the main towns, continue to use obsoletemachines and have unutilized capacity, due primarily to the lack of availabilityof better technology and to financial constraints. Special programs to developroadside workshops into modernized small-engineering enterprises (to caterpartially to the increasing demand-from the-agricultural and transport sectors)could form part of the strategy for the development of small-scale industries.Subcontracting will be an essential part of the Government's strategy for pro-moting SSIs, and GOB plans to develop a subcontracting exchange to assistsmall engineering firms in meeting public sector requirements for componentsand spares.

9.39 The present structure of incentives, however, creates some biasagainst the growth of the SCI sector. The overvalued exchange rate and lowtariff rates on machinery, for example, tend to encourage capital-intensivetechnology rather than labor-intensive techniques. The restructuring ofincentives proposed earlier would ameliorate some of this bias. But imperfec-tions in the capital market and in the system for distributing raw materialsare likely to continue to discourage SCI development unless deliberate actionis taken to reduce the power of localized monopolies and unless alternativearrangements are made for insuring the supply of raw materials at competitiveprices to small scale industries. This is particularly important in thehandloom sector, which has the greatest potential for employment-generationoutside agriculture. The SFYP rightly emphasizes the development of weavingcapacity, primarily in the handloom sector, by reactivation of idle looms,promotion of weavers cooperatives, and by improving the distribution of yarnand dyes. The provision of institutional credit and efforts in research,training, and extension for productivity and equipment development in thehandloom sector deserve encouragement and assistance.

9.40 The low levels of enterpreneurship and skills in Bangladesh callfor both a gradual improvement in technology (deepening) and for a spread ofthat improved technology (widening). But the choices of technology will haveto be considered carefully, especially in cases where there is a possibility

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of displacing substantial amounts of labor, however low the productivityof the labor may be (e.g. in-the handloom sector and in the milling of riceby traditional means). For example, the introduction of automatic riceprocessing mills will displace large numbers of female labor in the tradi-tional 'Dheki industry,' a loss of employment that has to be weighed againstthe inefficiency (in terms of waste of rice) of this traditional method.Improvements in the 'Dheki' method of milling and pre-milling processes andthe gradual conversion of Dheki into small 'custom mills' now beginning to bemanufactured in Bangladesh are aspects of the choice of technology which couldbe incorporated into the SCI strategy. A beginning is being made to exploreand assess such alternative techologies. BSCIC, with assistance from inter-mediate technology groups from the UK and India, is planning several pilotprojects in these areas. The Planning Commission's major study on the poten-tial of rural enterprise will also involve a detailed assessment of therelative benefits of alternative technologies, including Dheki vs. custommills vs. semi-automatic rice mills.

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CHAPTER 10: ENERGY

Introduction

10.01 Energy consumption in Bangladesh is characterized by heavy relianceon traditional fuels (such as crop residue and animal wastes) which account foran estimated two-thirds or more of the country's overall energy use. Consump-tion of commercial energy is extremely low, even compared with other countriesin the subcontinent. In terms of resource endowment, Bangladesh has anabundant potential supply of natural gas; unconfirmed recoverable reserves areestimated at about 7 trillion cubic feet, equivalent to 160 million tons ofoil. Relative to availability, the present level of gas consumption is low--equivalent roughly to 1 million tons of oil per annum. At present, naturalgas is used predominantly as feedstock for the fertilizer industry and asfuel for power generation. Bangladesh is otherwise poorly endowed in primaryenergy. The potential for hydropower is extremely limited and has largelybeen harnessed. Coal deposits exist, but these are currently not consideredeconomic to mine. 1/ Sporadic exploratory efforts for oil over the lastseventy years have so far yielded no results. Consequently, Bangladesh hashad to import all its requirements of oil and liquid petroleum products. Aswas noted in Chapter 4, even at the existing low level of consumption (1.5million tons), Bangladesh will need to dedicate about two-thirds of itsprojected FY81 export earnings for POL imports.

10.02 Although Bangladesh is currently expending a major portion of itsforeign exchange earnings on hydrocarbon imports, it may well be able todevelop eventually an overall favorable energy balance through the Pxploita-tion of its natural gas resources. To reduce the reliance on imported oil andat the same time improve the prospects for potential gas-based exports, theGovernment's stated energy policy for the medium-term is aimed at intensifyingexploration and increasing the economy's absorptive capacity for gas. In viewof the technological and economic limits to the substitution of liquid hydro-carbons by natural gas, Bangladesh is also giving high priority to the searchfor oil.

10.03 Oil and gas exploration and development now appear to have become--along with the MTFPP, primary education and family planning--"core priorities"of the SFYP. Since the draft SFYP was completed, a much-enlarged program ofexploration has been prepared by Petrobangla; this calls for the drilling of50 exploration wells (rather than the 20 in the SFYP). It remains to be seenwhether this more-ambitious program will be incorporated into the final SFYP,and.if so, what changes in intersectoral and/or intrasectoral priorities willensue so as not to enlarge the total Plan size.

10.04 In the draft SFYP, some 60% of the total hydrocarbon sector'sallocation is for gas development, transmission and distribution. Thestrategy implicit in this allocation is to emphasize gas development, bothto substitute for oil imports and to develop sufficient gas capacity to

1/ The SFYP has allocated Tk 80 million (US$5 million ) for the JamalganjCoal Mine Project, mainly for further pre-investment studies.

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support at least one high-cost, capital-intensive, export-oriented project.Implicit in the expanded oil exploration program is a higher-risk strategywhich aims more directly at minimizing oil imports-and establishing a resourcebase for eventual oil export. It is not yet clear whether (or to what extent)GOB believes that its resource availabilities (and technical and institutionalcapacities) will permit it simultaneously to pursue both objectives. In anyevent, and in view of the already established potentialities for gas exploita-tion, Bangladesh should give first prioritv to the development of existingnatural gas fields. The size of the oil exploration program will need to bedetermined on the basis of a more detailed assessment by GOB of the overallavailability of resources for the energy sector and the extent to whichexternal resources, both public and private, can be mobilized to finance theprogram.

10.05 At present, the role of the power sector in the economy is limited,providing neither sufficient supply nor reliability to meet the country'scurrent needs. Industrial and commercial consumption accounts for about77% of total power use; domestic and agricultural consumption remain low,but agricultural demand is expected to increase rapidly due to the Govern-ment's plans for accelerated rural electrification. Per capita consumptionis not more than about 15 kWh, compared to about 140 kWh in India and 147 kWhin Pakistan. As of mid-1978, about 320 of the country's 422 thanas were sup-plied with electricity, but less than 3% of the 65,000 villages were electri-fied and only about 4% of the population had access to electricity.

10.06 Estimates of the current end-use of petroleum products, natural gasand electric power, and the pattern that seems likely to emerge in 1985, aregiven in Table 10.1. 1/ On account of the limited potential of hydropower andin the absence of oil finds, Bangladesh will have to rely largely on naturalgas for meeting its commercial energy needs. Natural gas consumption, whichcurrently constitutes around 45% of Bangladesh's hydrocarbon consumption,is projected to increase to 62% by 1985; major end-users would continue tobe power generation and the fertilizer sectors. The contributions of coaland hydroelectricity to energy consumption are not shown explicitly inTable 10.1; these accounted for only 5.7% and 1.5%, respectively, of totalenergy consumption in FY80, and these shares are projected to decline slightlyby FY85. 2/

1/ The projections in Table 10.1 were prepared by IDA, on the basis of con-sultants' reports and in consultation with GOB. These projections differsomewhat from those in the SFYP in that the FY85 figures for petroleumproduct consumption is higher than in the Plan whereas the natural gasfigures are substantially lower than in the Plan. The FY85 figures forelectricity consumption do not differ markedly from those in the SFYP.

2/ See also Table 8.12 in the Statistical Appendix.

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Table 10.1: PATTERN OF ENERGY CONSUMPTION(in '000 tons of oil equivalent)

End-Use Petroleum Products Natural Gas ElectricitySource 1979 % 1985 % 1979 % 1985 % 1979 % 1985 %

Fertilizer - - - - 441 41 869 31 - - - -

Power /a 207 15 50 3 379 35 905 33 - - - -

Industries 275 19 340 20 197 19 892 32 230/b 80 450/b 73Transport 470 33 635 38 - - - - - - - -Agriculture 75 5 180 11 - - - - 12 4 86 14Domestic 390 28 470 28 55 5 124 4 45 16 78 13

Total 1,417 100 1,675 100 1,072 100 2,790 100 287 100 614 100

/a It should be noted that petroleum and gas used in electricity generationhas been included in the petroleum and gas columns.

/b Including fertilizer industry, commercial and miscellaneous consumption.

10.07 The outlook with respect to non-commercial energy sources is a dis-turbing one. Projections for the future indicate a declining per capita avail-ability of the major animal and vegetable wastes used as household fuel (withthe exception of rice hulls, which will continue to be required for parboilingrice). The straw yield of HYV rice is considerably lower than that for tradi-tional varieties of rice. As the shift to HYVs occurs, therefore-, the outputof rice straw is unlikely to keep pace with the rate of population growth.The output of jute sticks, on the other hand, will remain constrained-by thelimited economic potential for major increases in raw jute production. Notenough is yet known about the possibilities of substitution between varioustraditional fuels nor about the extent to which non-fuel uses of waste can becut down. It is therefore difficult to predict how the rural economy willrespond to a declining per capita availability of the major sources of tradi-tional fuel. Case studies of village economics suggest, however, that thereexists very little surplus waste and that traditional fuel will begin to havehigher opportunity costs associated with it.

10.08 A major concern is that a tightening of the traditional fuel marketwill impinge most severely on the rural poor, i.e., those without the neces-sary assets of land and livestock to be self-sufficient in fuel. The bulk oftraditional fuel supply will continue to be used for cooking, for which alter-native possibilities are extremely limited. Bangladesh clearly does not havethe resources to affect a major shift to commercial energy for rural domesticuse in the short or medium term. Measures designed to alleviate supplyconstraints in the rural domestic energy balance will therefore have to focuson the traditional fuel market itself. Possible measures include improvementsin the efficiency of energy use through the distribution of improved stoves,construction of biogas units, development of homestead woodlots and otherforestry projects using short-cycle trees, and the introduction of certainsolar applications.

10.09 Notwithstanding the close links between the power and gas sectors,prices for Bangladesh's different energy sources are not yet systematicallyrelated to each other, although the level and structure of gas and oil pricesobviously have a significant influence on the power sector's cost structureand fuel decisions. GOB now appreciates the need for such integrated pricingand will proceed with energy pricing studies as soon as the necessary expertise

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is mobilized. Natural gas is currently priced higher than the marginal costof incremental production but far below the opportunity cost of alternativefuels. Among petroleum products, domestic prices of diesel and kerosene areheld below cost (to subsidize irrigation, commercial transport and householduse), while gasoline prices are set above cost; on average, domestic petroleumproduct prices fully reflected international price levels as of November 1980.Electricity pricing, which is under review, will depend to a large extent onthe valuation of natural gas, its principal production input. A comprehensivepricing study would have to take into account production costs of energy,alternative energy sources for consumers, international prices, and second-best considerations for a policy that allows for selective subsidizationand other market distortions.

10.10 Coordinated energy planning is beginning, but there is as yet nocentral authority to implement integrated energy plans. The Planning Commis-sion's new Energy Planning Cell has begun to function, but its scope of workis limited and it will he restricted to an advisory function. Other stepsare needed to intensify and improve the coordination of decision-making inthe oil, gas, power, coal, and forestry sectors. At present, long-termpolicy and investment decisions are taken largely independently by individualauthorities.

10.11 The SFYP's total allocation to the energy sector is Tk 27.6 billion(US$1.7 billion), with a foreign exchange component of Tk 15.1 billion (US$946million) in FY80 prices; the total sectoral allocation is equivalent to 13.7%of the projected overall public sector outlay during the SFYP period. Withinthe energy sector's allocation, power would receive 73%, hydrocarbons 26%,and non-conventional energy (e.g. solar and wind), research and training 1%.

The Power Sector: Background

10.12 Two institutions--the Bangladesh Power Development Board (BPDB) andthe Rural Electrification Board (REB)--are charged with the construction andoperation of power generation, transmission and distribution facilties. BPDBsuffers from inefficiencies and staff imbalances, while REB is a new organiza-tion and benefits from a systematic plan for institution building. At present,almost all electricity consumers are supplied directly by BPDB, with theexception of some major industries (refining, fertilizer, paper and cement)which generate their own power. GOB policy is moving towards a separationof distribution on the one hand, and of generation and transmission on theother. The creation of the REB in 1978 was a first step in this direction.The REB has since embarked on an ambitious program to electrify rural areasthrough area coverage by cooperatives and intensive promotion among the ruralpopulation. During its short existence;, the REB has made significant headway,and the first villages under the program were electrified in June 1980.

10.13 The Bangladesh electricity system has developed in two separateparts, east and west of the Brahmaputra/Jamuna river. An electrical intercon-nector under construction will bridge this river barrier and it is anticipatedthat from about FY84 onwards the two supply systems will be unified. Of totalinstalled BPDB capacity (789 MW in June 1980), almost 90% is thermal, theremainder coming from the Kaptai hydro plant. Fifty-five percent of total

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capacity is natural gas-fired, located entirely in the Eastern Zone, nearthe gas fields. Owing to the lack of gas in the Western Zone, all capacityin that zone is oil-fired and therefore constitutes a heavy drain on foreignexchange; this can be mitigated by the east-west interconnector now underconstruction as well as by possible future gas finds in the west.

10.14 Both installed and available capacity have declined in the past threeyears. The decline in installed capacity is due to retirements without compen-satory capacity replacement. This decline, together with peak demand growingat about 13% per year, has sharply reversed the previously comfortable capacityposition of the system. Shortages are now widespread, particularly in theWestern Zone where maximum demand frequently has to be curtailed because ofinsufficient peak capacity. Availability has.been deteriorating due to insuf-ficient maintenance, delays in spare part purchase, interruptions in gassupply, drought effects on the hydro plant, and managerial problems. Systemlosses are high at 35% of gross generation, although almost all supply is inurban areas.

SFYP Objectives and Investment Program for the Power Sector

10.15 The main objectives for the development of the power sector as setforth in the SFYP are: (i) to make maximum use of indigenous resources suchas natural gas and hydro potential; (ii) to increase the system's efficiency;(ii) to establish a balanced country-wide integrated system; and (iv) toaccelerate the rural development program. Assuming that about 8% of FY80potential maximum demand was suppressed, the Plan's program is intended toprovide for an average annual growth of peak demand of 13% in the east zone,24% in the west zone, and 16% for the country as a whole. Total power consump-tion is expected to grow by 13% annually for the mainly urban BPDB-servicedareas; the REB target is to provide electricity to 20% of households in23,000 villages (35% of the country's total) by FY85. Another target is toincrease the number of irrigation pumps operating on electricity from 3,000in FY80 to 31,000 in FY85. Overall, it is expected that the number of elec-tricity users will increase from 450,000 in FY80 to 2.1 million in FY85 andthat maximum demand will increase to 1,035 MW; supplies would be availablefrom the rehabilitation of existing plants, the completion of five plantsalready under construction, and from four new plants to be constructed andcommissioned.

10.16 A total of Tk 20 billion (US$1.3 billion) has been allocated topower sector investment in the SFYP. The dominant share is BPDB's withabout 72% of the total, followed by REB with 22%. Generation expenditureaccounts for 39%, transmission for 14%, and distribution for 47%. The highdistribution share is due to the intensive rural electrification effort plannedduring the SFYP.

10.17 The investment program for power generation draws on the results ofvarious studies and appears to be satisfactory as a general guideline to powersystem expansion. Although the plan is not a result of a systematic least-cost simulation model, the alternatives open to BPDB are relatively few andthe general structure of the development program appears satisfactory. The

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ongoing construction at the Karnafuli hydro station, the Khulna and Chittagongoil/gas fired steam stations, and the Barisal barge-mounted gas turbine unitare expected to be completed by 1983. Firm plans beyond the ongoing projects

call for the extension of gas-fired steam stations-at Ghorasal and Ashuganj(2 x 100 MW each) in the Eastern Zone and an extension of the Bheramara oil-

fired gas turbine capacity in the west. Present indications are that theseprojects are viable and justifiable, but the small nuclear plant included inthe program does not appear to be economically justified, especially in view

of overall resource limitations. The economic justification of the Brahmaputrabarrage project (now at an early stage of identification) also appears ques-tionable and this should be studied extensively to determine its feasibility.

10.18 The major transmission project now underway is the 230 kV line to

connect the Eastern and Western Grids. The timing of this interconnector isof utmost importance for the Western Zone, as it is not clear whether theKhulna station will be completed in time for generation in 1982. One of these

two possible sources of new capacity will have to be available to avoid sub-stantial capacity shortages in the Western Zone in 1982/83. Distributionprojects implemented by BPDB will aim at the improvement of supply reliabilityand the reduction of system losses, mainly in urban areas. With respect to

the ambitious rural electrification program, the prospects for implementation,on the basis of experience to date, appear promising. REB has demonstratedits ability to achieve its first organizational, construction and connectiontargets. Moreover, the economic feasibility of the Area Coverage RuralElectrification (ACRE) program appears to be well established, as each coop-

erative area has potential for the productive use of electricity such asirrigation pumping and small industry.

10.19 In sum, the proposed investment program per se appears on the wholeto be both appropriate and feasible. The demand forecasts, however, need to

be refined (taking into account both price effects and potential shortfalls in

the targeted growth of other sectors). In the event of a resource shortfallfor the overall power sector program, generation development should receivehighest priority, and some distribution and rural electrification projectsshould be delayed.

10.20 Although the plan itself is not explicit concerning the key issuesof what needs to be done to improve BPDB's management and financial perfor-

mance and to rationalize the power tariff structure, these matters have been,and are continuing to be, studied and negotiated with GOB by IDA and ADB inthe context of their credits to BDPB. A financial recovery plan for BDPB(which has been experiencing large operating deficits, owing largely to thefact that power tariffs have declined substantially in real terms over thepast decade) has been agreed with GOB, including a major restructuring ofBDPB's debt and a broad range of efficiency and tariff measures. Power sectortariffs are under review, and are in the process of being revised towards a

structure consistent with the marginal-cost-based recommendations of a recenttariff study. Average tariff levels (at Tk 0.70/kWh in FY80) will have to beabout Tk 1.20/kWh (USe 7.3) in 1982 to achieve the required financial perform-ance. Bulk tariffs for rural cooperatives still have to be decided upon, but a

solution to this question is urgent, as rural demand will be growing rapidly

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from now on. A decision on the optimal point of subsidization, if any, hasto be taken to ensure the commercial viability of BPDB, to satisfy the Govern-ment's policy of affordable rural power supply, and to guide the investmentdecisions of the rural cooperatives. A tariff cell charged with continuousanalysis of marginal cost and other relevant tariff considerations is beingset up within BPDB; this significant move should enable the Board to formulatetariff policies on a rational basis, independent of political pressures andexcessively short-run considerations.

The Oil and Gas Sector: Background

10.21 The utilization of Bangladesh's gas deposits (both proven and poten-tial) in energy development is critical to the country's balance of payments(with respect to export prospects as well as import-substitution possibilities)and to its outlook for accelerated agricultural as well as industrial growth.At present, natural gas constitutes about 45% of estimated hydrocarbon consump-tion; in 1979, natural gas consumption was 43,540 million standard cubic feet(MMCF), equivalent to about 1.1 million tons of oil (70% of which was from theTitas gas field), the remainder being met from crude oil and petroleum products.

10.22 In FY80, Bangladesh imported 1.12 million cubic tons of crude oil

for refining at its refinery in Chittagong; this refinery operates well belowits capacity of 1.5 million tons. Facilities are included for extracting andbottling 6,000 tons per year of liquefied petroleum gas (LPG). As there isan imbalance between the domestic consumption pattern and product yield,Bangladesh exports naptha and fuel oil while importing kerosene, aviationfuel, and diesel oil. Since the current refining capacity is inadequate tomeet domestic needs, additional crude oil is being refined in and importedunder contract from Singapore.

10.23 Hydrocarbon development, processing and distribution are controlledand supervised by two sector corporations; oil and gas development functionsby Petrobangla and oil importation, export, refining and marketing by theBangladesh Petroleum Corporation (BPC). As with other sectoral corporationsin Bangladesh, these act as holding companies, with direct managerial andoperational tasks being performed by individual companies under their super-vision and control. The complexity of the existing institutional framework,in combination with management scarcities and inefficiencies, has led toduplicative responsibilities and redundancies and has impeded comprehensiveenergy planning. GOB has recognized the need for improved energy planning,and towards this end has recently created an energy cell within the Ministryof Planning and allocated funds in the SFYP for an electricity planning com-mission and an energy institute. The SFYP recommends that a Ministry of Energybe established to provide overall coordination in the energy sector. This,and other proposals to reorganize energy sector activities, e.g. creation ofa unified national oil company, require close consideration by GOB.

10.24 The need for more integrated planning is evidenced, for example, bythe fact that there are enormous differences between petroleum product demand

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Drojections prepared by BPC and those prepared by the Planning Commissionfor the SFYP. BPC has projected demand to increase at an average annual rateof 8.1% during the Plan period, whereas the corresponding figure reported inthe Plan is 1.7%. The demand projections are clearly crucial both for invest-ment programming and balance of payments' management; a case in point is theprospective viability of the proposed new refinery, which might be justifiedunder the BPC projections but would clearly be a more questionable investmentunder the Planning Commission's projections.

10.25 In any event, both sets of projections (and their underlying methodo-logies) appear to be seriously deficient; IDA has therefore prepared its ownprojections 1/ of both the demand for petroleum products and the prospectivebalance of payments' impact of petroleum transactions during the SFYP period.While IDA's own projections are subject to considerable further refinement, itdoes appear that BPC's projections are much too high and that the Plan hasunderestimated both the growth of demand and the prospective foreign exchangeburden of POL imports.

10.26 The most critical needs concerning the future development ofBangladesh's hydrocarbon sector are: (i) to increase the economy's absorptivecapacity for gas, both in terms of substituting gas for oil to the maximumextent feasible and fostering gas-based industries; (ii) to more fully appraisethe country's gas reserves as a basis for determining the opportunity cost ofgas, the optimal pace of exploitation, and export options (e.g., export viapipeline, after liquefaction, and development of export-oriented industrieswhich are energy-intensive and/or use natural gas as a feedstock); (iii) toassess very carefully the capital costs, relative priorities and affordabilityof (i) and (ii); (iv) insofar as domestic resources, foreign aid and foreigncompany participation on a risk-capital basis permit, to intensify the searchfor oil; priority should be given to reorganizing, collating and reinterpretingexisting geological, seismic and drilling data; (v) to formulate and implementcoherent, comprehensive and rational pricing policies for the energy sectoras a whole; and (vi) to rationalize the sector's organizational framework andmanagement.

SFYP Objectives and Strategy for the Hydrocarbon Sector

10.27 The strategy for development of the hydrocarbon sector as outlinedin the SFYP is addressed to some of these issues. But the listing of pro-posed projects is not supported by a clear indication of investment criteriaor by a specific implementation program; nor are relative priorities indicatedother than by overall subsectoral allocations. As noted above, the methodo-logy of the demand projections is inadequate and the plan is not specificwith respect to critical policy issues, including energy pricing and institu-tional development.

1/ These are shown in Tables 3.9 and 8.11 in the Statistical Appendix; theunderlying analysis is reported in a World Bank energy sector report onBangladesh, forthcoming in 1981.

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10.28 The total sectoral allocation of Tk 7.3 billion (US$456 million) issubstantial and does not include provision for financing either the proposednew 2 million ton capacity refinery or 11 tankers included in the Plan'sphysical program. The refinery and tankers are intended to be financed out-side the Plan, the refinery through a joint venture with external resources,the tankers by private sector financing or through financing institutions.Table 10.2 shows the proposed distribution of sectoral investments by majorcategory.

Table 10.2: SFYP ALLOCATIONS IN THE HYDROCARBON SECTOR(in Tk million)

Total Foreign Exchange % of TotalSubsector Allocation Component Allocation

Geological Survey 25O0 100 3.4Hydrocarbon Exploration 1,600 1,000 21.9Gas Field Development 1,150 854 15.8Gas Transmssion and

Distribution 3,400 2,182 46.2Petroleum Production

and Distribution 900 610 12.3

Total 7,300 4,746 100.0

Source: SFYP.

10.29 It may be seen from the above table that the prbposed development,transmision and distribution of natural gas resources accounits for 62% of thetotal sectoral allocation. Exploration activities (including geologicalsurveys) account for a further 25%, leaving a relatively small allocation forpetroleum production and distribution. The growing importance of "downstream"activity is evidenced by the fact that nearly half of the total allocationwill be devoted to gas transmission and distribution, with major projectsincluding the Bakhrabad-to-Chittagong pipeline and the extension of a pipelineto the east bank of the Jamuna River, via Mymensingh. Provision has also beenmade for a feasibility study on the transmission of gas across the JamunaRiver to western Bangladesh in the event that no gas discoveries are made inthe Western Zone. To date, only 4 of the 10 known gas fields are producing,and none have so far been fully appraised or delineated. Only one additionalfield (Bakhrabad) is expected to come into production during the SFYP period.An emphasis on more appraisal drilling rather than on further exploration forgas would appear to be warranted in the Eastern Zone.

10.30 The Plan program for gas development provides for 15 new wells in 5locations to meet the increased energy needs for power and fertilizer. Withrespect to exploration, about 20 wells are planned to be drilled, 13 byPetrobangla and 7 by foreign contractors. Petrobangla would be assisted bythe Federal Republic of Germany in carrying out its program. The Western Zonewill receive priority in the exploration program. The shortcomings of Petro-bangla's own past efforts in exploration underlines the need for adequatetechnical assistance in future activities. In addition, Bangladesh has

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recently announced increased incentives designed to attract further explora-tion activities by foreign oil companies. 1/ As of November 1980, negotiationswere in progress with three foreign companies for onshore concessions. Giventhe limitations of Bangladesh's own financial resources and technical capabil-ities, it will clearly be important that GOB encourage foreign companies toparticipate in exploration on a risk capital basis. IDA is currently provid-ing technical assistance to the Government in planning its exploration programand is also financing a study to ascertain appropriate levels of gas pricesand their impact on the economy, including an evaluation of options foroptimizing the use of natural gas.

10.31 In global terms, it is appropriate to Bangladesh's needs and poten-tialities that the draft SFYP has devoted 3.8% of the total Plan allocationto hydrocarbon exploration and development, and that this allocation isregarded by the Government as one of the Plan's "core priorities". As wasindicated in paras 10.03 and 10.04 above, however, there are indications thatthe final Plan might devote a much higher proportion to accommodate an enlargedoil exploration program. Moreover, in the absence of both a long-term, com-prehensive energy plan and more detailed feasibility studies of individualprojects, it is not yet possible to form firm conclusions about the appro-priateness of the Plan's subsectoral allocations, much less about most of thespecific projects which remain to be prepared. In any event, major tasksconfront the Government in undertaking the necessary studies and in strength-ening the institutions and instruments for planning and implementation; inthese areas, Drompt action is of highest priority. On the other hand, deci-sions to undertake any major new project must be taken with considerablecaution. Given the high costs and indivisible character of many of thelarge-scale, capital- and import-intensive projects envisaged in the sector,the same admonitions apply to energy-related as to industrial projects:Bangladesh must be especially thorough in its feasibility analyses beforeproceeding with LNG or methanol export, a new refinery, the purchase oftankers, the building of major pipelines, or other such costly projects.Preliminary indications are that methanol production may warrant relativelyhigh priority and that the proposed new refinery would not be economicallyjustified.

10.32 With respect to the crucial issue of oil and gas pricing policy,the Plan states only that the Government intends "to evolve and implement anenergy pricing policy which is uniform and rational for all parts of Bangladeshfor promoting equitable regional growth." During the past decade, Bangladeshhas on the whole performed well in taking politically-difficult decisions topass on to consumers international increases in oil prices. On average,domestic petroleum product prices have increased seven-fold over the-pastseven years.

10.33 As noted earlier, there remains a need to further rationalize powerprices, and the same is true for natural gas prices. GOB increased gas rates

1/ In 1974, GOB entered into production-sharing contracts in offshore areaswith seven oil companies. Seven wells were drilled, resulting only inone gas discovery, and the companies have since relinquished their con-cessions.

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in June 1979 by an average of 42% and by a further 12% in June 1980; excisetaxes on gas were also raised slightly for FY81. Gas prices currently rangebetween Tk 8/MCF and Tk 19/MCF, with the average sale price being aboutTk 9.25/MCF. Even these revised prices for gas are well below the interna-tional price of fuel oil, which in terms of heat value would be equivalentto about Tk 63/MCF. In pricing gas at these levels, the Government hopes toprovide incentives to new and existing domestic industries. Some degree ofincentive pricing for gas may be appropriate, given the low financial cost ofproduction and low economic (opportunity) cost (Tk 13/MCF). Nevertheless,there remains a large "economic rent" comprising the difference between theeconomic cost of gas (basically its production cost plus a depletion premium)and its value to those consumers who would otherwise use imported fuel oil.Setting the gas price above its cost to the economy (but below the fuel oildomestic equivalent price) therefore would encourage gas-based industries andat the same time permit the public sector to mobilize the additional resourcesso greatly needed for investment in all sectors. Setting the price too low,however, may lead to both foregone revenues and to the undertaking of uneco-nomic projects. GOB has recently undertaken to increase average gas pricesby at least 20% by June 30, 1981 and periodically thereafter to fully reflectboth domestic inflation and movements in international oil prices. Given theimportance and manifold implications of this issue, it is clearly importantto the economy--and to the prospects for the SFYP--that GOB act expeditiouslyin carrying out the gas utilization and pricing study it has recently agreedto undertake.

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CHAPTER 11: POPULATION CONTROL AND FAMILY PLANNING

Background

11.01 Several recent Bank reports 1/ have described in some detailBangladesh's demographic circumstances and family planning achievements andshortcomings to date. This chapter will therefore touch upon these subjectsonly briefly and concentrate upon reviewing the objectives, targets, prior-ities, and prospective programs for population control and family planningas set forth in the SFYP.

11.02 The First Five Year Plan established as a national demographicobjective the achievement of replacement level fertility (NRR=1) by the year2000. In 1976, GOB set an even more ambitious target which implied theachievement of replacement level fertility by 1985, implying in turn anincrease in contraceptive prevalence (or continued use) among eligible couplesof reproductive age from about 10% to over 60% within nine years. W4hile therewas never any serious prospect that this goal could be attained, the decisionwas nevertheless explicit evidence of the Government's concern with, and poli-tical commitment to, the control of population growth. More importantly, itmarked the development and promulgation of a national population policy andthe setting up (with substantial external financial and technical assistance)of a broad-based multi-sectoral population control and family planning program.In terms of program inputs, considerable progress has been made in the fiveyears since the program was established in early 1976. First, about 18,000fieldworkers have been recruited and, after a brief initial training, are nowin place at the union and ward levels. Second, multi-sectoral information,education, and motivation activities have been initiated by the six Ministriesinvolved in the program; these have highlighted population growth as both anational and individual family problem, and helped generate demand for familyplanning services. Third, the Government has begun to encourage private sec-tor and innovative activities and has established an institutional mechanismfor their coordination. Fourth, although no legal or incentive measures haveyet been adopted, 2/ a study of the fertility impact of existing national lawshas been completed. Finally, the Government has initiated various experimentalcommunity participation schemes, including the 'Swanirvar' village program;according to recent studies, these schemes have begun to have some impact onacceptance of family planning methods. In brief, there is now in place anestablished population control and family planning program, a large cadre offull-time fieldworkers, a wide range of information, education and motivationactivities, and a Government fully committed to the control of populationgrowth.

1/ See Bangladesh: Current Economic Trends, Vol. II, April 1978 (IBRDReport No. 1931-BD) and Bangladesh: Staff Appraisal of a Second Popu-lation and Family Planning Project, May 1979 (IBRD Report No. 2323-BD).

2/ Legislative proposals to increase age of marriage, and to liberalizeabortion are expected to be placed before Patliament by April-May 1981.

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11.03 These achievements are not inconsiderable, considering that fiveyears ago the population control and family planning program was barely func-tioning. Nevertheless, the results to date in terms of family planning ser-vices delivered have not begun to approach the Government's admittedly

ambitious targets with the notable exception of female sterilizations duringthe last two years. According to the 1976 target of replacement level ferti-lity by 1985, contraceptive prevalence should have reached about 22% by FY80.

The actual prevalence, as indicated by a recent survey, is currently onlyabout 13%. Family planning services delivered since FY76, by method, are asfollows:

Table 11.1: FAMILY PLANNING SERVICE DELIVERY(in '000)

Voluntary Sterilizations OtherYear Tubectomies Vasectomies Total Condoms /a Pills /b IUDs Methods

FY76 11 38 49 4,562 5,943 78 131FY77 41 75 116 2,938 4,639 59 69

FY78 45 33 77 5,447 7,487 41 43FY79 82 25 106 4,795 7,121 23 54

FY80 171 28 199 4,865 6,228 22 87

FY81 /c 103 12 115 3,562 3,998 . 56

/a Dozens./b Cycles.7T First half.

Source: Ministry of Health and Population Control, PCFP Division.

11.04 More importantly, the actual supply of services falls well short of

the demand (estimated at about 25% of eligible couples) created in part by theefforts described above. Indeed, most informed observers (including Governmentofficials) agree that the single most important problem now facing Bangladesh'sfamily planning service delivery program is its inability to satisfy existingdemand. The reasons for this shortfall are several. First, a significantorganizational constraint until very recently has been the difficulty exper-

ienced by the Health Division and the Population Control and Family PlanningDivision (PCFPD) of the Ministry of Health and Population Control in develop-ing a set of mutually satisfactory working relationships and procedures.Second, the performance of the program's fieldworkers has been unsatisfactory.Their activities have not, in fact, extended beyond the distribution of pillsand, owing to inadequate initial and in-service training, they have beenunable to handle complications arising from their use or to provide maternaland child health (MCH) services. Their technical support and supervision havealso been weak. Third, PCFPD's management and administration is over central-

ized and its thana-level supervisors and administrative staff are themselvespoorly trained and inadequately supervised. Finally, transport facilities,logistics and physical infrastructure remain inadequate. Although theseproblems are to some extent common to all development activities in Bangladesh,the critical priority of population control requires that special attention begiven to their early resolution.

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11.05 It is against this background of considerable progress in terms ofpolicy and program development, but slow implementation in the face of arapidly deteriorating demographic situation, that the SFYP's sectoral objec-tives and proposed strategy must be considered.

Plan Objectives and Targets

11.06 The demographic goal of the Second Plan is the achievement ofreplacement level fertility by 1990. If achieved, this would result in atotal (but still growing) population of about 117 million by the year 2000.Consistent with this (revised) longer-term goal, specific program objectivesare to reduce the crude birth rate from about 43 per thousand in FY80 to 32per thousand by FY85--implying an increase in contraceptive prevalence amongeligible couples of reproductive age from about 13% to 38% during the nextfive years. In other words, the absolute number of continuous users ofcontraception will have to increase from about 2.4 million at present to about7.4 million by FY85--an average of 1 million annually. In terms of specificfamily planning methods, the Plan's main emphasis in recruiting new acceptorsis to be on sterilization (targeted to increase from 19% of total acceptors inFY80 to 43% by FY85), followed by IUDs and by other traditional and newmethods (e.g., injectables). Correspondingly, the proportion of acceptorsusing oral pills and condoms, together accounting for 74% of the total inFY80, is expected to decline to about 43% by FY85.

Table 11.2: TARGETED CONTRACEPTIVE PREVALENCE RATIOS, FY81-85(percentages)

Method/Year FY80 FY81 FY82 FY83 FY84 FY85(actual)

Sterilization 19 25 30 35 39 43Pills 40 37 34 31 28 25Condom 25 24 23 21 20 18IUD 6 6 7 7 7 8Other Contraceptives 10 8 6 6 6 6

Total 100 100 100 100 100 100

Source: Second Five Year Plan.

11.07 The absolute numbers of new acceptors to be recruited by year andmethod are as follows: 1/

1/ Subsequent to the issuance of the draft Plan, the National Council onFamily Planning directed that the aim should be to achieve the SFYPcontraceptive targets by the end of FY83. The short-term sterilizationtargets in particular have been raised considerably, to 1.2 million peryear for FY82 and FY83. Although only 100,000 sterilizations werereported during the first half of FY81, the Government is hopeful that300,000 will take place in the latter half of this year.

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Table 11.3: NEW FAMILY PLANNING ACCEPTORS BY METHODS, 1981-85(in '000)

Method/Year FY81 FY82 FY83 FY84 FY85

Sterilization 407 552 666 804 963Pill 828 614 670 917 830Condom 409 648 779 665 742IUD 101 206 192 222 328Others 119 208 168 194 206

Source: SFYP

Implementation Modalities

11.08 To achieve its proposed objectives, the Plan proposes the followingimplementation strategy and modalities:

(a) to enlist the support and participation of various organiza-tions and groups (villages cooperatives, swanirvar committees,labor unions, and youth and women's organizations) and todirectly involve the Gram Sarkars, Union Parishads and otherlocal government institutions in birth planning for everyvillage by means of target and community incentives;

(b) to integrate the delivery of health and MCH/family planningservices at thana level and below in order to make bothclinical and outreach services more effective and to streng-then the supervision of the fieldworkers;

(c) to popularize voluntary sterilization through the provisionof high quality clinical and follow-up services by: enlis-ting full support of all doctors, both government and pri-vate; increasing fees for medical and paramedical personneland compensation for clients; introducing a bond schemefor couples with only 2-3 children; and offering preferen-tial treatment for sterilized couples and their childrenin social services, employment, etc;

(d) to mobilize social support in favor of: delaying marriage,particularly for girls below the age of 16; raising the pre-sent legal age of marriage from 16 to 18 for girls and from18 to 21 years for boys; and spacing of births;

(e) to intensify training of all fieldworkers at thana leveland below;

(f) to introduce new social and legal measures, includingincentives and disincentives, in support of fertilityreduction; and

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(g) to review program performance monthly at all levels (inclu-ding the village level) against the annual targets andimplementation schedules, with a view to taking necessarycorrective measures.

Feasibility and Implementation Issues

11.09 The issue whether Bangladesh's current demographic goals, and speci-fically its SFYP objectives, are too modest or too ambitious is to some extentan academic one. The fact is that the current rate of population growth mustbe reduced significantly if the country's overall development is to be sus-tained over the coming decades. The Plan document itself states that "anymeaningful population strategy must involve the notion that fertility willdecline drastically and that decline cannot be delayed. Thus, the onlyrecourse left open is to vigorously pursue the policy of achieving NRR = 1 by1990". The real issues are whether the scale, contraceptive mix, and timetableenvisaged for the provision of conventional family planning services are feas-ible from the implementation point of view. Related to this is the questionwhether other population control measures, in addition to conventional familyplanning services, may not be needed to help achieve the desired reduction infertility.

11.10 In addressing these issues, experience to date (except perhaps duringthe last year) is not a very useful guide. The principal achievements duringthe past five years have been the development of policies and programs, theestablishment of a national organization and service delivery system, and thecreation of awareness, acceptance and demand for family planning services.The next five years will be a crucial period for the still-developing servicedelivery system: first in stepping up contraceptive prevalence from about 13%at present to the (estimated existing) demand level of 25% by about FY82; andthen in increasing both demand and supply to 38% by FY85. On the supply side,there is technically no reason why the service delivery system now in placecannot meet the existing demand level of 25% contraceptive prevalence withinthe next three years. The basic organization, professional, paramedical andfield staff, logistics and physical infrastructure are in place. The criticaldeterminant of progress will be the efficiency of the system's management andadministration and the quality of the services provided, particularly forclinical methods (i.e., sterilizations and IUDs).

11.11 In this connection, there have been promising signs of progressduring the last year concerning the amelioration of the three principal con-straints to improved performance, namely: improved cooperation between theHealth Division and the PCFPD; strengthened fieldworkers' training, perfor- -

mance, and supervision; and gradual decentralization of the management andadministration of PCFPD. For example, since February 1980 the Health and PCFPDivisions have been headed by a single Secretary and since July 1980 thedelivery of health and MCH/family planning services (at thana level and below)have been integrated under the Thana Health Administration. Outreach workers(family planning and family welfare assistants of PCFPD and family welfareworkers from Health will henceforth work together as teams. Clinical familyplanning services (mainly sterilization) are now being provided not only byPCFPD medical officers but also by those of the Health Division. One indicator

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of improved performance at least partially attributable to these developmentsis the increased number of sterilizations carried out in FY80 which, at about197,000, exceeded the FY79 total by 87% and represented about 83% of theprogram's target, despite a two-month fieldworkers' strike in April/May 1980.Similarly, action has been taken to strenthen in-service training and super-vision of fieldworkers, while the decentralization of PCFPD's district levelorganization has continued. Thus, while overall performance is still unsatis-factory, progress is being made, overall morale and confidence are improving,and the entire program is receiving strong political as well as bureaucraticsupport. In short, despite the many constraints, the health and MCH/familyplanning service delivery system is now poised for a major effort during thenext five years. There is, however, a potential danger that the pressures nowbeing exerted at the field level to improve service delivery and performancein general could lead to a deterioration in the quality of services, particu-larly of sterilization. GOB is aware of this problem and has recentlyrecruited technical assistance to help strengthen medical surveillance andmonitoring activities.

11.12 Even if implementation of the service delivery system improvessufficiently to satisfy existing demand by, say, mid-1983, much more willhave to be done to achieve the Plan's objective of 38% contraceptive preva-lence by mid-1985 (not to mention the higher levels required later in thedecade to attain replacement level fertility by 1990). Indeed, it would beprudent to assume now that conventional family planning services (i.e., steri-lization, pills, condoms, IUDs, injectables) will not alone be sufficient toachieve the dramatic fertility decline that Bangladesh's demographic circum-stances require. In other words, there is a need for GOB to determinewhich additional innovative or unconventional (i.e., non-contraceptive)measures would be politically, socially and administratively feasible andacceptable to supplement and complement the ongoing family planning program.It is in this respect that the SFYP document is least specific and needsfurther attention.

11.13 Although reference is made in the SFYP to certain social and legalmeasures that have been proposed or are under consideration, it does notindicate the status of these measures nor does it assess specific alternativeprograms and projects and their likely effectiveness and estimated demographicimpact. Out of a total Plan allocation for population control and familyplanning of Tk 6.15 billion (US$384 million), only Tk 100 million is earmarkedfor a bond scheme, Tk 100 million for innovative projects, and Tk 260 millionfor contingencies, including community incentives. Clearly, much more workremains to be done in this area, firstly in terms of undertaking the necessarypreparatory work (feasibility studies, project formulation, etc.), and thenin developing a coherent medium-term implementation plan. This task willbe of highest priority for Bangladesh's planners and decision makers during1981. An important starting point in this connection is with the experiencealready gained from several government and private sector initiatives designedto stimulate the economic and social emancipation of women, e.g., IRDP women'scooperatives, mothers' clubs, and women's vocational training. In addition,four broad areas appear to merit priority consideration:

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(a) incentives for acceptance and continued use of contracep-tive methods, such as IUDs and injectables, since asprevalence increases, these may become the most importantand acceptable forms of contraception;

(b) individual and community incentives for delayed marriage,birth moratoria and birth spacing, such as special voca-tional and skill training schemes for teenage girls andyoung mothers;

(c) increased support for the large number of non-governmental/voluntary organizations involved in health, family planning,and nutrition activities, some of which have demonstratedsignificant impact on fertility reduction; and

(d) community mobilization in support of increased food produc-tion, functional literacy, and family planning based onthe Swarnivar (self-reliance)/Gram Sarkar experience.

11.14 In view of both the potential importance of new initiatives (insome or all of the above areas) and the urgent need for prompt and agressiveaction on several fronts, it may be appropriate that a special high-poweredtask force or steering group be set up to commission the necessary preparatorywork, to assess findings and recommendations, and following governmentalapproval to direct, monitor and supervise implementation. In light of themultiplicity of issues and interests involved, the present preoccupation ofthe Planning Commission and PCFPD planning unit with routine servicing ofexisting activities, and the need to avoid a "conventional committee approach,"such a group--responsible directly to the Minister of Health and Family Plan-ning--would help to ensure that the approved measures would receive the requi-site political commitment and follow-up attention to their implementation.

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CHAPTER 12: EDUCATION

Background

12.01 This chapter comprises a relatively brief and narrowly focuseddiscussion of the principal educational objectives set forth in the SFYP andof the key constraints to the realization of those objectives.

12.02 The SFYP itself contains a useful review of both the achievementsand shortcomings in Bangladesh's educational development during the periodFY73-80. Among the achievements were: a 33% increase in the number ofschools and colleges; a rise in the primary school enrollment ratio from 58%to 71%, with a higher rate of increase in the enrollment of girls (50%) thanof boys (30-35%); a 35% increase in overall secondary school enrollment (secon-dary schools and colleges being predominantly in the private sector); substan-tial enrollment increases in the engineering colleges and in polytechnic, com-mercial and vocational training institutions; and a 33% increase in universityenrollments, together with some qualitative improvements in higher education.

12.03 The Plan document frankly acknowledges, however, that most of theseimprovements have been quantitative rather than qualitative, and that in manyrespects past educational policies and programs have served to perpetuate orcompound imbalances, inequities, and distortions in the country's educationalsystem. Among the principal defects or shortcomings of the system identifiedin the Plan are the following:

(a) an excessively urban-focused and elitist structure of educa-tion that has remained essentially unchanged over the pastdecade, with the consequence that the urban-rural gap haswidened while the illiteracy rate has remained at about 80%;

(b) high drop-out rates (particularly at the primary level wheremore than half the students entering grade 1 leave schoolbefore grade 5), which results in considerable wastage ofresources and inefficient use of teachers;

(c) excessive emphasis on liberal arts education, reflected byacute unemployment (as high as 25%) among university grad-uates having received such education;

(d) a lack of correspondence between the demand for labor withparticular skills and the supply of these skills beinggenerated by the educational system;

(e) a moribund system of teacher training;

(f) the propensity of the system to develop negative attitudestowards work and to alienate people from the society in whichthey live; and

(g) the lack of a coherent national educational policy based

upon a study of the entire existing education system.

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12.04 This is indeed a severe indictment of the system and of the thrustof past policy. Yet the SFYP is not the first Bangladeshi plan in which mostof the shortcomings noted above have been recognized or in which the Governmenthas stated its resolve to reverse some of these trends. In both the FirstFive-Year Plan (FFYP) and the Two-Year Plan (TYP), the stated education priori-ties emphasized: adult literacy; vocational, technical and teacher-trainingprograms; more selective higher education; special attention to female educa-tion; and the need to allocate more resources to both primary and secondaryeducation than to university-level education. In the event, however, only 57%of the FFYP and TYP allocations for education were actually spent, and boththe composition of actual expenditure and the direction of intended policywere markedly different from those originally envisaged. The poor implementa-tion of the programs set forth in both earlier Plans is illustrated by thefact that, despite the priority supposedly given to primary and non-formaleducation vis-a-vis higher education, actual expenditure on primary educationproved to be only half of that on university education while there was vir-tually no real progress in the area of non-formal education programs. TheGovernment's failure to keep to the intended allocation pattern stemmed mainlyfrom the ability of urban middle- and upper-class interest groups to influencethe Government's priorities in favor of higher, relative to lower, education.The FFYP set a target of a six-fold increase in female teachers, but only adoubling was achieved, and only half the number of primary schools intended tobe constructed in the TYP were actually completed. Both plans targeted asubstantial reduction in the primary school drop-out rate, but in fact nosignificant improvement was achieved. While the growth of enrollments wasitself faster than the growth in the population of student age, the quality offacilities, materials, curricula, teaching and supervision--the main underly-ing causes of the high drop-out rate--remained essentially unimproved.

12.05 Thus, while both Plans forthrightly identified the system's problemsand shortcomings and proposed generally appropriate strategies to overcomethem, the implementation of those strategies was clearly unsatisfactory. Themost basic explanation for this is simply that the Government did not reallyassign high priority to educational development and reform. This is indicatedat the macro level by: (i) the decline of the shares of both the developmentand revenue budgets devoted to education during the past decade, and (ii) thefact that Bangladesh's recurrent expenditure on education (as of 1976) as apercentage of GDP was little more than one-third of the average for all deve-loping countries and less than half that of Asian countries. In addition tothe inadequate allocation of resources to the sector, other factors accountingfor the poor performance included: the Government's unwillingness to resistthose interest groups biased towards higher levels of education; delays inproject and program preparation, owing partly to frequent turnover amongsenior administrators in the Ministry of Education; the lack of adequate staffand management either to translate stated plans and policies into detailedaction programs or to supervise and evaluate on-going programs; delays inconstruction and procurement on the part of implementing agencies (e.g., thePublic Works Department and Textbook Board); and delays in the release offunds allocated under the ADPs.

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Educational Objectives and Strategy of the SFYP

12.06 It is against this background of past performance that the edu-

cational objectives, targets, and strategy of the SFYP have been framed.

Its stated objec.tives are broadly similar to those of the FFYP and TYP,

with the notable difference that the SFYP assigns markedly higher priority

to primary education and mass literacy programs. In particular, the Plan

calls for developing low-cost functional education; broadening the base of

primary education; linking education with employment; making science and

technology a basic component of the education system; accelerating the

development of women's education; and reducing the rural-urban disparity in

the provision of educational services. The share of primary/mass education,

which averaged about 13% of total development outlays for education during

the period FY73-80, would increase to about 50% (41% for primary and 9%

for mass literacy) under the Second Five-Year Plan.

Table 12.1: DISTRIBUTION OF EDUCATIONAL EXPENDITURE

(percentage of shares of total develop-ment expenditure on education)

FFYP/TYP FY74-80 Actual SFYP

Allocations Expenditures Allocation

Primary 18 13 41

Secondary 20 12 19

College 8 6 5

University 13 26 6

Teacher 6 3 3

Technical 20 18 7

Other 15 22 19 /a

Total 100 100 100

/a Includes 9% of total allocation for mass literacy programs, of

which roughly half comprises "community contribution in the

form of voluntary works."

Source: SFYP.

12.07 To achieve these objectives, the plan gives the highest priority

to four major programs: universal primary education, mass literacy, vocation-

alization of secondary education, and the restructuring of the technical edu-

cation system.

12.08 The universal primary education (UPE) program has as its major goal

the enrollment of nearly 13 million children, representing 92% of the total

6-11 age group, in primary grades 1-5 by FY85. As shown in Table 12.2, this

would call for an 85% increase in primary level enrollments during the Plan

period. The mass literacy program aims to eradicate illiteracy by training 40

million out-of-school youths and adults (in the 11-45 age group) within five

years. Rural areas and urban slums are intended to be focal points of the

program. The most significant aspect of the program of vocationalization at

the secondary level is the proposed development of community schools. This

program calls for the conversion of one secondary school in each of the 6,500

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unions into a community high schol offering a "community-based" curriculum inaddition to the standard subjects. The objective is to provide the ruralpopulace with low-cost functional (vocational) training which would impartthose skills most relevant to rural production processes. The main emphasisof the program to revamp the technical training system would be upon theconsolidation (rather than expansion) of facilities, upgrading teachers,bringing curricula more into line with the country's needs for specifictechnical skills, and introducing second shifts in all institutions. The lastobjective is in keeping with the overall sectoral strategy to achieve a fullerutilization of both existing physical facilities and individual abilities.

Table 12.2: SFYP ENROLLMENT TARGETS(in millions)

% GrowthFY80 FY85 FY80-FY85

Enrollments

Primary, total 7.00 12.99 86Boys (4.76) (6.77) (41)Girls (2.24) (6.28) (180)

Secondary, total 2.00 2.50 25Boys (1.48) (1.70) (15)Girls (0.52) (0.80) (54)

Technical

University 0.03 0.04 35

Source: SFYP.

Feasibility of the Educational Strategy

12.09 The basic objectives and the overall strategy as outlined in thePlan appear on the whole to be appropriate, particularly with respect to theintended shift in the composition of sectoral expenditure. The SFYP wouldraise the overall sectoral allocation to 4.5% of total public sector financialoutlays (as compared with less than 3.5% in the TYP) and imply that totaleducational expenditure would reach 2% of GDP by FY85. This increased allo-cation would still appear to fall,-short of what is warranted, but it should berecognized that the absolute levels of spending, if achieved, would be largein view of the inherent limitations on the sector's near-term absorptivecapacity and that meeting the target will require a major step-up in the paceof spending. In any event, there is a clear case for including the plannededucational program (notwithstanding the unrealistically ambitious characterof some of the targets) among the SFYP "core priorities" and for "protecting"the sector's projected absolute level of expenditure from cuts in the event ofoverall shortfalls in resource availabilities. It is encouraging to note that

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the country's political leadership is fully committed to the prospective pro-gram. This is clearly a necessary (although not a sufficient) condition forsuccess.

12.10 In order for the strategy to be implemented with even a moderatemeasure of success, certain actions are required. First and foremost, thePlan needs to be supplemented by a realistic, project-specific and time-phased sectoral action program which clearly establishes internal prioritiesfor the utilization of scarce manpower and management resources as well asfinancial resources. The Plan itself is notably lacking in the detailedprogrammatic content without which resources will inevitably be wasted andeven best efforts frustrated.

12.11 With respect to the primary education program, new ways must befound to reduce school construction costs and per-student costs of teachers'salaries (which currently account for 99% of recurrent primary educationexpenditures). The use of local materials by schools, together with communityself-help in planning, construction and maintenance, will go a long way inreducing the program's capital costs, Systematic school mapping could alsoserve to reduce the number of buildings required to cover a given population.Since much of the recurrent expenditure on primary education is now wastedthrough drop-out before literacy or numeracy are attained, an emphasis onraising the quality of instruction and on improving retention rates wouldcontribute indirectly to lower costs per graduate. The enhanced allocationsunder the Plan for management, supervision, teacher training, and instruc-tional materials are all appropriate reflections of the need to improveboth the quality and efficiency of the system.

12.12 The proposed program to turn 40 million illiterates into functionallyliterate citizens within five years is clearly not feasible; however, institut-ing a program which is capable of imparting basic literacy to large numbers ofpeople is both desirable and feasible. A factor which augurs well for theliteracy program's prospects is its conscious structuring along lines pursuedby other countries which have experienced considerable success with suchprograms (e.g., Cuba and Nicaragua). Some prominent features are: runningthe program on a self-help basis; creating literacy squads for each village;utilizing schools, mosques, community centers and private homes as literacycenters; rewarding service in the program with national awards; and requiringthat secondary school students participate in the program as part of theirrequirement for graduation. There remains the danger, however, that theexceedingly ambitious nature of the targets may again lead the Government tospread its resources and efforts too thinly and thereby accomplish less thanwould be achieved with somewhat more realistic targets.

12.13 The prospects for vocationalizing secondary education are also some-what problematic. Community (diversified) schools have been a popular alter-native to purely academic schools, but the experience of many countries shedssome light on the kind of problems that may arise. The introduction of diver-sified curricula is a complex undertaking requiring special teachers' skills,new curricula and physical resources, and a high level of maintenance costs.In other countries, community schools have typically proven to be an expen-sive form of secondary education, in large part because the fitting of occupa-tional curricula to the special needs of a local economy is a delicate task

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in which miscalculations may leave expensive facilities underused. The other

danger in vocational-izing individual schools (rather than the secondary curri-culum in general) is that this may face resistance on the demand side as

well as reluctance on the supply side, pending changes in the existing elitistenvironment biased towards academic schooling and white-collar employment.

12.14 To meet the unsatisfied and growing needs for qualified techniciansand professionals, the emphasis on polytechnic education (rather than on uni-

versity education) is well placed. Polytechnics have an advantage over

universities in that they can concentrate on specific and industry-relatedfields, provide short terminal programs, relate more directly to the require-

ments of the economy, and are extended more easily to reach different parts of

the country.

12.15 The success or failure of the overall education program will dependcritically upon the extent to which GOB can act quickly to improve its imple-mentation capabilities. This in turn will call for organizational reform

and institutional development. In recognition of this fact, the Governmentplans to reorganize the Ministry of Education and to decentralize the admini-stration and supervision of the educational system. The main features of the

reorganization are the establishment of three new directorates in place of

the existing Directorate of Public Instruction, i.e., the Directorates ofPrimary and Mass Education, of Secondary and College Education, and of Inspec-

tion. The reorganization also calls for the establishment of a CurriculumDevelopment Center, a National Institute of Educational Administration and

Management, and an Educational Media Service.

12.16 The reorganization of the Ministry and the decentralization ofadministration are both fundamental to the community-based nature of the

education strategy. These arrangements can only be successful, however, if

suitably trained and motivated personnel are involved in the education systemfrom the center (Dacca) to the village level. The creation of the National

Institute of Education Administration and Management is a linchpin in thedevelopment of a cadre of skilled education administrators. In addition, theCurriculum Development Center and the media services should be developed notonly as vehicles to provide support throughout the system, but also as instru-

ments through which professional educators can further develop their skillsand advance their careers. In the past, these opportunities have been lacking

within the highly bureaucratic educational structure, with the consequencethat few professional educators have been attracted to Government service.

12.17 Existing institutions also need to be strengthened to assist inPlan implementation. For example, the education plan provides for the supplyof free textbooks to about 13 million primary students over the five yearperiod (39 million books), while the mass literacy program envisages provi-

ding reading materials (primers) to 40 million people in 5 years. These

additional demands, when added to the normal output of primary and secondarytexts plus teaching aids, will severely tax the limited existing capacity of

the Textbook Board's production and distribution system. An overhaul of the

Board's operations, including its links to private publishers and printers, isplanned; major objectives of this exercise should be to restore the Board to

financial solvency through a review of its pricing practices, to give the

Board the capacity to print some percentage of the books demanded by the

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public, and to link its operations more directly to those of the CurriculumDevelopment Center.

12.18 The Government's progress in developing an action program for the

education sector has so far been limited. In the area of primary education,

however, the Government (with assistance from IDA) has launched a Universal

Primary Education (UPE) project in 40 Thanas (10% of the country). This pro-ject includes all of the inputs called for in the national plan, and consti-

tutes a first step towards the achievement of universal primary education.

Evaluations of the success of the various interventions will be used in deve-loping other primary education projects. A school mapping exercise has been

completed for these 40 Thanas, and another is planned for the remaining Thanas

before further primary school construction is undertaken. In mass literacy,

the Government has already launched a crash program (January-June 1980) to

achieve literacy for one million people. An evaluation of this program is

now underway; its results are intended to guide the launching of future mass

literacy projects. With regard to community schools, the Asian Development

Bank is assisting the Government in preparing a pilot project for 200 selected

secondary schools. UNESCO/UNDP is also providing assistance to the Directorateof Technical Education for the preparation of the polytechnic program. In

sum, as regards the Plan's major programs, the Government has begun work on a

number of pilot schemes, the evaluation of which will guide the development of

larger projects.

12.19 What is still lacking,-however, is a centralized effort to trans-

late the-education plan into a portfolio-of projects'and a parallel effort

to identify existing and potential implementation bottlenecks (financial/physical) and those remedial actions that will be necessary to overcome these

bottlenecks. To accelerate this work, the Government should quickly establish

the necessary terms of reference for the action program, recruit the necessary

manpower (including such technical assistance as will be needed), establish a

firm timetable for completion of the program, and carefully monitor its

progress.

12.20 In conclusion, it should be noted that the educational strategy nowchosen by Bangladesh--and broadly endorsed by IDA as appropriate to the

country's conditions and needs--has important implications for the type of

foreign aid that will henceforth be most appropriate. In the past, the empha-sis has tended to be placed on the rapid expansion of physical facilities,

particularly at the higher levels of education. This was mainly because the

Government itself fostered such investments but also partly because thesetended to be the preferred form of donors' aid to educational development.

The emphasis from now on, however, is intended to be upon achieving the

adequate staffing and utilization of existing facilities and upon shifting the

composition of development expenditure towards relatively manpower-intensive

programs for primary education, mass literacy, and teacher and vocationaltraining. These are all areas which will call for more recurrent instead of

capital expenditure and for more local currency rather than foreign exchange

financing. The implication for the donors is that, if they wish to support

these worthwhile programs, there should be a corresponding shift towards more

commodity aid, local currency financing, and provision of "software" through

technical assistance and away from relatively capital-intensive project

financing.