Document of FIL C The World Bank FOR OFFICIAL USE ONLY Report No. P-2461a-LSO REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE KINGDOM OF LESOTHO FOR A WATER SUPPLY PROJECT March 6, 1979 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS Currency Unit Rand (R) US$ = Rand 0.87 1 Rand = US$1.15 WEIGHTS, LENGTH AND MEASURES 1 Acre-foot (ac ft) = 1,233.5 cubic meters 1 Imperial Gallon (Ig) = 1.2 US gallons = 4.55 liters 1 cubic meter (m3) = 220 Ig or 264.2 US gallons 1 million Imperial gallons = 4,546 m3/day ,per day (Imgd) 1 liter per second (1/sec) = 0.0864 m3/day (19,005 Ig/day or 22,824 US gallons/day) 1 meter (m) = 3.28 feet (39.37 inches) 1 millimeter (mm) = 0.039 inches 1 kilometer (km) = 0.62 miles 1 square kilometer (km2) 0.386 square miles (or 247 acres) ABBREVIATIONS AND ACRONYMS AfDF = African Development Fund Binnie = Binnie and Partners, UK FRG = Federal Republic of Germany Government (GOL) - Government of Lesotho HMSB - Hydrological and Meteorological Services Brarnchles, Ministry of Public Works (MW) KfW Kreditanstalt fur Wiederaufbau LNU = Lesotho National University MHSW M Ministry of Health and Social Welfare MGMT - Ministry of Geology, Mines and Tourism MF - Ministry of Planning and Finance Ml e Ministry of Interior MW - Ministry of Works ODM - Ministry of Overseas Development, UK RSA - Republic of South Africa UK - United Kingdom of Great Britain and Northern Ireland USAID - United States Agency for International Developmient VWS - Village Water Supply Branch, Ministry of Rural Development (MRD) WHO - World Health Organization WSB - Water and Sewerage Branch, MW FISCAL YEAR April 1 - March 31 FOR OFFICIAL USE ONLY LESOTHO WATER SUPPLY PROJECT CREDIT AND PROJECT SUMMARY Borrower . Kingdom of Lesotho Amount : US$6.0 million Terms Standard IDA Project Description: The proposed project would provide for: (i) construction of water supply system extension in seven towns; (ii) tech- nichal assistance; and (iii) engineering consulting services. It would develop Lesotho's water resources; strengthen sector institutions; and upgrade domestic water supplies. The project would, by 1986, provide public water service to some 20,000 new consumers who now rely on un- protected sources and would improve reliability and quality of water now supplied to about 21,000 current consumers. In addition, the Project would strengthen a key Government institution, the Water and Sewerage Branch (WSB) of the Ministry of Works (MW). The project faces no unusual risks. However, inadequate staffing may affect the rate of project implementation. The risk has been minimized by providing technical assistance under the project. In addi- tion, a comprehensive training program to meet WSBts man- power needs is being financed by the Government of the Federal Republic of Germany. This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. I. Estimated Costs: (US$ Thousands) Local Foreign Total It em A. Construction 1,599 3,503 5,102 B. Institutional Development 23 108 131 C. Preparation of Phase II Project 19 71 90 Subtotal 1,641 3,682 5,323 D. Physical Contingencies 213 411 624 E. Price Contingencies 313 699 1,012 TOTAL 1/ 21,167 4,792 6A959 II. Financing Plan IDA 1,200 4,800 6,000 Government of Lesotho 959 - 959 TOT L TU12 9 158 4 O 6 959 III. Estimated Disbursement Bank/FY 1980 1981 1982 1983 1984 Annual 420 2,820 1,820 750 1i50 Cumulative 420 3,240 5,100 5,850 6,000 Rate of Return (see para. 47) Appraisal Report: Report No. 2230-LSO, dated March 1 , 1979. 1/ There are no significant identifiable taxes. INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE KINGDOM OF LESOTHO FOR A WATER SUPPLY PROJECT 1. I submit the following report and recommendation on a proposed development credit to the Kingdom of Lesotho for the equivalent of US$6.0 million on standard IDA terms for a water supply project. PART I - THE ECONOMY 1/ 2. The most recent economic report entitled "Economic Memorandum on Lesotho"(No. 2251-LSO) was distributed to the Executive Directors in February 1979. A report (No. 1688-EA) which examined migration in southern Africa, and in particular, the migrant 'Labor situation in Lesotho, was dis- tributed to the Executive Directors in February 1978. Country data are shown in Annex I. 3. Lesotho is one of the UN-designated 'least developed' countries. GNP per capita in 1977 was estimated at US$230. 2/ Completely landlocked by the Republic of South Africa (RSA), the country is mountainous, soil erosion is extensive, and less than 15 percent of its land area is suitable for crop cultivation. Population pressure on land resources is intense. In 1977 the population was estimated at 1.3 million, growing at 2.2 percent a year. 4. Ihe economy is dominated by subsistence agriculture and by temporary migration for employment, mainly in South African mines. Subsistence agricul- ture and livestock rearing are the main economic activities of about. 90 per- cent of the resident population and account for about 40 percent of domestic product. The economy is also characterized by a critical dependence on South Africa which accounts for (i) about 90 percent of Lesotho's merchandise trade and tourist traff:ic; (ii) employment of about one-half of its male labor force; (iii) migrant workers' remittances equivalent to about 60 percent of the domestic product in 1977; and (iv) zustoms receipts from the Southern Africa 1/ Part I of this report is the same as Part I in Report No. P-2443a-LSO on Lesotho Third Highway Project, scheduled to be considered by the Executive Directors on March 13, 1979. 2/ GDP per capita was about US$125 in 1977. GNP substantially exceeds GDP because of migrant workers' remittances. - 2 - Customs Union 1/ which account for almost 60 percent of total Government revenues, The country's integration with the South African economy has also been bolstered by its membership in the Rand Monetary Area and by the country's use of t1-.e South African rand as its currency. 5. While Lesotho's lack of natural. resources is a major constraint tD its development, its unique migrant labor situation remains the Government's o03t formidable problem. About 165,000 Basotho are estimated to be employed as. migrant workers in South Africa; this contrasts sharply with only about 3K,00 in wage employment in the domestic economy. Since there are few opportun-.ties for domestic earnings in Lesotho comparable to those in South African mincs, rapidly rising mine wages in recent years have spurred even greater migration. Between 1970 and 1977, the number of Basotho workers in the mines increased by 40,000 while domestic wage employment is estimated to have grown by Less t:han 10,000. 6. Migration has provided substantial remittances which have become critical to maintaining the living standards of a large segment of the poru-- lation; recent studies have shown that crop production now accounts for lEss than 20 percent of rural household income. But continuing absence of suci a large proportion of the country's able-bodied male population has contributEd to (i) a donmestic shortage of skilled and semi-skilled manpower; and (ii) a decline in agricultural production, both of which compound the problem of long- term economic development. Furthermore, the country is vulnerable to develop- ments affecting migration in South Africa over which the Lesotho Government has no control. For example, increasing mechanization in South African mines and recruitment trends from other supplying countries and within South Africa itself (the proportion of black South African workers in mining has increasEd from 24 percent in 1973 to 50 percent in 1977) are expected to reduce futur-e demand for Basotho labor. With South Africa's policy of releasing migrant. back into the Lesotho labor market the pressure on domestic employment may rapidly increase. Desp:ite intensive research, the opportunities for creat:ng additional employment in the agricultural sector seem to be too limited to meet a rapidly growing demand for domestic employment. In searching for altern..tives, the Lesotho Government, in 1977 with IDA support under the Second Highway Project, established a labor-intensive construction unit within the Minist:-:y of Works, tc explore the economic and technical feasibility of labor-inten.ive public works as a means of substantially increasing domestic employment. Important lessons are being learned and on-the-job training is being provided for local staff, who would expand the scope of labor-intensive operations as needed in the future. 7. Government development policy and programs as outlined in the Second National Development Plan (1975/76-1979/80) are aimed at: (i) restoring the viability of the agricultural sector; (ii) improving infrastructure, particu-- larly roads and communications between the mountain regions and the economically 1/ The Sout:hern Africa Customs Union was established in 1910 (and revised inL 1969 and 1976) among Botswana, Lesotho, South Africa and Swaziland. The Agreement provides for free movement of goods among member cotntries, aaci for revenue-sharing from a common pool of customs, excise and sales duties. more developed lowlands; (iii) reforming the educational system to meet the country's development needs; (iv) expanding the industrial base by strengthen- ing the Lesotho National Development Corporation, the country's main channel for industrial investment; and (v) generally reducing the country's economic dependence on South Africa. The emphasis of the Plan is well directed to the country's main development problems, and the investment pattern, giving priority to agriculture, infrastructure and education, reflects the basic needs of an economy still at a very early stage of development. 8. Recent economic growth has been satisfactory, despite sharp fluctua- tions in agricultural output mainly because of unfavorable weather. Over the 1974/75-1977/78 period, output tripled in the Government and tourism sectors, and increased tenfold in construction. Overall GDP is estimated to have increased about seven percent a year in real terms. The expenditure pattern highlights the country's severe external dependence; the average level of consumption exceeded the domestic product by about 75 percent, a situation made possible by a substantial inflow of migrants' remittances (para. 4). Total investment averaged 23 percent of GDP, compared to 14 percent in 1974/75, reflecting a sustained rise in government construction activity, and private investment in diamond mining. 9. On the fiscal side, government revenue stagnated between 1974/75- 1976/77 at about R 30 million, as customs receipts declined, but jumped to R 54 million in 1977/78 as customs receipts doubled after the 1976 revision of the revenue-sharing formula of the Customs Agreement. Over the same period, recurrent expenditure increased from R 19 million to R 45 million, implying a growth rate of 34 percent a year in current prices, as a result of: (i) revisions of public service wages and salaries in 1975 and again in 1977 partly to stem the outflow of skilled workers to South Africa; (ii) continuing expansion of the Government administration; and (iii) growing recurrent budgetary demands of an expanding development program. Following a R 2 million deficit in 1976/77, the recurrent budget realized a R 8 million surplus in 1977/78 which resulted mainly from the sharp rise in customs receipts as well as in grants following Lesotho's appeal in 1976 for additional assistance to strengthen its economy and reduce its external dependence. In 1977/78, capital expenditure increased almost fourfold over the 1974/75 level, as a result of improved implementation capacity, stemming from a gradual buildup of local skilled manpower and operation of a substantial technical assistance program. 10. Lesotho's balance of payments is characterized by a chronic imbalance in merchandise trade which is funded largely by migrants' remittances and official transfers. Between 1974 and 1977, total merchandise imports increased from R 74 million to about R 169 million, reflecting: (i) the capital goods requirements of an expanding development program, (ii) a 20 percent increase in the number of migrants in South Africa, and (iii) the import demand for manufactured goods from rising household incomes due to increased migrants' remittances. Over the same period, exports increased slightly from R 10 million to R 12 million reflecting a stagnation in recorded exports of wool and mohair, the main traditional export commodities. On the services account, net earnings - 4 - of migrant:s in 1977 were 2.5 times the 1974 level mainly as a result of rapidly rising minie wages and increased migration, while net transfers doubled with the surge in customs receipts. The overall balance of payments showed an ave:-age deficit of R 5 millioni a year. However, this only partly reflects the country's foreign reserves posilion, given the integration of the monetary system w:ith that of South Africa, and the substantial under-recording of excternal tranis- actions. 11. Until 1975, the United Kingdom was the major source of financia.l assistance, but during the last few years, a growing number of bilateral 2.nd multilateral agencies have provided grants or concessionary credits for Iroject financing. At the end of December 1977, Lesotho's external debt (disbursed and outstanding) was estimiated at US$23 million; service obligations were US8C.5 million representing less than two percent of recurrent revenue (given Lesotho's special monetary arrangements with South Africa, relating debt service paLyment:s to recurrent revenue rather than to foreign exchange earnings is a more iiieaning- ful concept of the country's debt service capacity). Over the next seve:i:al years, most of Lesotho's capital assistance is likely to continue as grar.ts or concessionary credits, and servicing of external public debt is expected tD re- main at about two percent of government recurrent revenue. 12. Lesotho's medium-term economic outlook will be largely influenced by the terms of its continuing economic arrangements with South Africa, part:i- cularly its membership in the Customs Union, and the level of future migra':ion. These uncertainties, including its delicate geopolitical situation, coupled with the country's scarcity of natural resources, underline the difficult task of development. While current revenue will continue to critica:Lly depend on the Customs Union, the country's growing absorptive capacity and the recurrent budgetary commitments of an expanding public investment program call for a more rapid increase in revenue and greater diversification of revenue sources. Although the Governmenit is examining ways to increase internal revenue fo:llow- ing a recent IMF review of the fiscal system, given the country's narrow t:ax base, these objectives can only be realized in the long term. In the mea:ntime, donor agencies should consider financing in most projects not only all fo.Veign costs, but also a substantial part of local costs. If Lesotho is to susta.ia its rate of economic development, it will need continuing external assist,:.nze on grant and IDA terms., PART II - BANK GROUP OPERATIONS 13. To date Lesotho has received seven IDA credits totalling US$35.2 million for seven projects (excluding US$9.0 million for a Third Highway Project scheduled for consideration by the Executive Directors on March 13, 1979). Two credits (US$11.6 million) in the agricultural sector have helped to finance the Thaba Bosiu Rural Development project (1973) and the first phase of the Basic Agricultural Services Program (1978). Both projects aim to expand the availability of agricultural inputs and servicei to small farmers in the traditional sector. Two credits (US$11.5 million) in the -5- educational sector have helped to expand Lesotho's vocational, technical and commercial training capability as well as increase the availability of second- ary education in the rural areas. Two credits (US$9.6 million) have helped finance two roads projects which improved sections of Lesotho's major road network and supported the initial operations of a labor-intensive construction unit. Finally, one credit (US$2.5 million) has assisted Lesotho's industrial development by providing financial assistance to the Lesotho National Develop- ment Corporation (LNDC) and its subsidiary, the Basotho Enterprise Development Corporation (BEDCO). As of December 31, 1978, IDA credits outstanding and disbursed amounted to US$17 million, representing an estimated share of Lesotho's total external debt (disbursed) of some 65 percent. Due to the fact that most external aid in the past has been provided on grant terms, servicing of IDA credits is estimated to have increased to about 20 percent of total debt service at the end of 1977. Annex II contains a summary statement of IFC investments and IDA credits and notes on the execution of the ongoing projects. The country's capacity for project implementation has improved considerably over the last few years. Consequently, the quality of implementation of Bank Group assisted projects is reasonable. 14. Future operations will continue to support the Government's devel- opment objectives. Preliminary discussions have been held on a possible third rural development project, which may focus on land use, livestock and/ or soil conservation. The Bank Group also expects to continue its assistance to the two financial intermediaries, LNDC and BEDCO and preparatory work is under way for an urban development project. In addition, the Bank Group is reviewing with the Government the need for a technical assistance project which would focus on strengthening the Government's planning capability and management of its parastatal organizations. PART III - THE WATER SUPPLY AND WASTE DISPOSAL SECTOR 15. Lesotho's water resources are substantial although availability is constrained significantly by location and season. The total annual resource has been estimated to be 4,500 million m3 (3.6 million ac ft) of which surface water represents over 99 percent. However, due to more extended durations of flows and generally better and more uniform water quality, springs and bore- holes -- particularly the former -- are used widely throughout Lesotho to meet domestic water demands in rural areas. Due to steep slopes and little alluvium, runoff tends to be rapid and carryover storage frequently is necessary for supplies dependent upon surface sources. Natural water quality of all supplies is good relative to chemical characteristics. Supplies from boreholes and protected springs generally have good overall quality throughout the year. Due to high turbidity, suspended solids concentrations, and fecal pollution, surface sources normally are used only for urban supplies involving relatively large quantifies, and for which water treatment is provided. - 6 - 16. Less than one percent of Lesotho's water resource currently is used and there is little likelihood that this proportion will increase substan- tially in the immediate future. With this in mind, the Government is inves- tigating the feasibility of exporting a portion of Lesotho's surplus wat:er to the Republic of South Africa (RSA). Meanwhile, GOL has authorized stud:'.es of domestic water needs. Public Health 17. The principal water-related diseases reported are: diarrhea, typhoid, hepatitis, polio and infectious skin and eye diseases. The proposed pr:)ject is expected to improve public health by reducing the prevalence of such dis;eases. However, hygiene at personal and household levels apparently is little iinder*- stood or practiced so that health education needs to be intensified. U'AID- financed rural health and rural water supply projects are expected to rE:solve this problem. We propose to keep this matter under constant review dur:ng supervision of this project (para. 36). Sector Organization and Development 18. Five different ministries are active in the sector. The Mini.;try of Works (MW) and the Ministry of Rural Development are the principal ones: the remainder mainly are supportive. MW is active in the sector through it; Water and Sewerage Branch (WSB) and its Hydrological and Meteorological Servizes Branch (HMSB). WSB provides water in nine district headquarters towns (including the capital, Maseru) and a newly developed town located in central Lesotho, in addition to sewer service in two of these towns. WSB also expect:s to manage water systems in four additional towns as soon as facilities naow under design are commissioned. WSB will also take over ownership of the existing small water supply system in the town of Roma, one of the towna benefiting from the proposed project, from the National University of Lesotho by March 31, 1980 (Section 4.10 of the draft Credit Agreement). HMSB develops and maintains hydrologic and meteorologic networks, and maintains supporting records. The Ministry of Rural Development is responsible for constructing and operating water supply schemes in rural areas of Lesotho through it~: Village W'ater Supply section. 19. Ministry of' Interior involvement in the sector is limited to l[aseru. and the district headlquarters towns, where it is responsible for removal, and disposal of night soil from bucket latrines. The Ministry of Geology, M4iaes and Tourism carries cut ground water investigations and surveys. The Piblic Health Division of the Ministry of Health and Social Welfare (MHSW) operates a public health laboratory and administers an external assistance grant to improve latrines and water supplies at primary schools. Other support uunc- tions provided by MHSW include health education, the maintenance of health statistics, and the monitoring of solid waste disposal. 20. WSB effectiveness is hampered by a lack of autonomy and authority in accounting and personnel matters. GOL recognizes the need for more autonomy but, based on experience, considers it prudent to proceed slowly. In May 1978, as a first step, the Minister of Finance issued directions covering WSB's operations known as the Water and Sewerage Service Directions. The directions give WSB a measure of autonomy in the conduct of its operations and require commercial accounts to be prepared. Very recently the Government created a Ministry of Water, Power and Natural Resources, and as soon as the administrative arrangements have been made WSB will be transferred to the new Ministry, but the scope of its operations would be unchanged. Present Service Levels and Goals 21. Close to 100 percent of Maseru, the only area which can be considered urban, and a substantially lower percentage of the rural population, about 16 percent, have reasonsable access to piped water supplies. Remaining towns (none of which have a population exceeding 6,000) are classified as rural centers. In Maseru and in the eight district headquarters treated water is delivered to domestic customers through inside taps, outside taps, and public standposts. Rural supplies, which provide little, if any, control of water quality, are available mainly at the source or from public standposts. In Maseru sewer service is provided to about 50 percent of the population. The balance of the urban population generally is served by bucket latrines or pit privies although, in some instances, conservancy tanks or septic tanks are used. About 50 percent of the population of Maseru s peri-urban area are served through pit and bucket latrines while the balance have no sanitation facilities. 22. The Government's objectives and development strategy, as reflected by the first and second five-year development plans (1970/71-1974/75 and 1975/76-1979/80, respectively), include surveying the country's water re- sources and needs and constructing facilities to serve specific population centers and viLlages during the plan periods. Except in Maseru, wastewater systems in the district headquarters towns are not considered necessary until after adequate town water supply schemes are completed. In the meantime, the Government intends to improve other types of sanitation service. Sector Investment 23. Capital financing for the sector has not been a significant con- straint in the first and second development plan periods, and is not ex- pected to be one during the next several years. Considerable assistance has been provided by various external sources and this is expected to continue. Kreditanstalt fur Wiederaufbau (KfW) is to finance water supply schemes in six of thirteen towns to which the Government gives priority and schemes for the remaining seven towns would be financed by the proposed IDA Credit. The United Kingdom is financing the Maseru sewerage modification program and the African Development Fund is assisting in the Maseru water supply development. Tariff Policy 24. Piped water supplies in Maseru and in the district headquarters towns generally are metered and a flat rate tariff of R 1 per thousand Ig; (US$0.96 per thousand US gal), which does not fully cover the operating cost of the service, is levied by WSB. GOL subsidizes remaining costs. Customers with private connections are charged whereas water from public standposts is free to consumers. Government recognizes that a National Water Supply and Sewerage pricing policy, based on economic principles, needs to be developed, but this cannot be done immediately (para. 32). 25. Information on past operating expenditures is not available ia a usable form. Government expenditures on major maintenance of rural wLt:er supply arnd sanitation schemes will increase as sector goals for village water supplies are met. A village water supply project being considere(d for United States Agency for International Development (USAID) financing has a component for strengthening maintenance and operation in recogniticn of the importance of this aspect. Possible Constraints 26. The principal constraint to planned sector development is a shlort- age of qualified staff to plan and administer projects and to operate amad manage the water supply and wastewater systems efficiently. In addition, insufficient public education on health and hygiene prevents full benefits from being derived from the investments. To the extent possible, devel:lp- ment projects should incorporate commitments or include components desi~,;ned to overcome these constraints. PART IV - THE PROJECT 27. The project was prepared by the Government, with assistance by consultants, and appraised in the field by an IDA mission in May 1978. Negotiations were held in Washington from January 23 to 24, 1979. The Lesotho delegation was led by the late Mr. Mapetla, then Permanent Secre:ary of the Ministry of Finance. 28. A report entitled "Staff Appraisal Report, Water Supp-ly Projecl:, Kingdom of Lesotho" (No. 2230-LSO, dated March 1, 1979) is being distributed separately. Project Objectives and Description 29. The objectives of the proposed project are to provide water suypLies to about 20,000 new consumers in seven small towns by 1986 and improve scrzice to 21,000 current consumers through better control of water quality and -9- enhanced access through provision for additional public standposts. Specifi- cally, the proposed project would, over a five-year period, provide funds for: (i) construction of water supply system extensions at each of seven towns (Leribe, Mafeteng, Mohale's Hoek, Mokhotlong, Quthing, Roma and Teyateyaneng); (ii) institutional development through consulting services for accounting im- provements and tariff studies; and (iii) engineering consulting services. Detailed Features 30. Construction Work. Civil works would consist of: (i) source of supply facilities; (ii) treatment works; (iii) pumping plant structures; (iv) transmission mains; (v) service reservoirs; (vi) distribution systems; and (vii) ancillary structures. Equipment would include: (i) pumping plant; (ii) treatment plant; (iii) water meters; (iv) vehicles and (v) tools and miscellaneous equipment. Consulting engineers would be employed whose quali- fications, experience, terms and conditions of employment would be satisfac- tory to IDA for design and supervision of construction (Section 3.02(a)(i) of the draft Credit Agreement). 31. Institutional Development and Financial Management. Although WSB does not at present operate as a separate accounting entity the Government intends that it should do so in future. Its accounting procedures are in accordance with usual Government cash accounting practices and are mainly concerned with accountability for parliamentary approved expenditures. Account- ing information is inadequate for effective management. In order that WSB's accounting will conform to the provisions of the Water and Sewerage Service Trading Directions and provide adequate information for financial management and reporting, the project would provide funds for the employment of account- ing consultants to design and assist with the implementation of an accounting system, identify further staffing needs and train or arrange for training for accounting staff. The borrower would appoint such consultants with qualifications, experience and terms of employment acceptable to the Associa- tion (Section 3.02(a) (ii) of the draft Credit Agreement) and not later than March 31, 1980 after consultation with the Association, implement such consultant's recommendations as are considered appropriate on a time schedule to be agreed with the Association (Section 4.04 of the draft Credit Agreement). 32. In November 1977 the Government doubled WSB's water rate (to US$0.96 per thousand US gallon equivalent). However, the tariff is still inadequate to meet cash operating expenses and debt service. The Government recognizes the need for developing a national water supply and sewerage pricing policy based on economic pricing, including possible changes in the present practice of charging one national flat rate for all water supplied to WSB's consumers, other than standpipe users. The project would provide funds for WSB to employ consultants with qualification, experience, and terms and conditions of service acceptable to the Association to carry out a tariff study by June 30, 1980 (Section 3.02(b) of the draft Credit Agreement). - 10 - 33. Based upon the study, the borrower will, not later than September 30, 1980, establish annua:L financial performance standards acceptable to the Association including, inter alia, the requirement to produce annual revenues sufficient to cover a:Ll operating expenses, including depreciation, and a reasonable return on ithe assets used for WSB's services. Promptly thereafter WSB will modify the level and structure of water and sewerage tariffs to mteet such standlards (Section 4.05(a)(ii) of the draft Credit Agreement). WSB would revalue its fixed assets annually using methods acceptable to the Association and would have the first such revaluation completed for the year ended March 31, 1979 within six months from the date of the Credit Agreement, )I such other date as may be agreed upon by the borrower and the Associatio:i (Section 4.08 of the draft Credit Agreement). 34. Pending the basic tariff reform, the Government will, prior to credit effectiveness, raise WSB's water supply and sewerage tariffs to l^els adequate to cover cash operating expenses and debt service (Section 5.01,d) of the draft Credit Agreement) and will maintain them at levels sufficieait for such purpose (Section 4.05(b) of the draft Credit Agreement). 35. In order that WSB can operate effectively as a separate financ:.al entity, the Government, will pay WSB for water supplied through public stand- pipes at average cost, less charges to consumers, if any, and will pay foar water supplied to Government departments and agencies at rates comparable to users with similar water consumption patterns (Section 4.06 of the draft Credit Agreement). 36. To ensure that WSB's limited management resources are not over extended, apart from the project and the ongoing AfDF- and KfW-financed projects, WSB will not until project completion, incur annual capital ex penditures exceeding US$200,000 without prior consultation with the Association (Section 4.09 of the draft Credit Agreement). Project Cost and Financing 37. The total cost of the project is estimated at R 6.1 million (US$7.0 million equivalent) net of taxes and duties (which are negligiblE) Foreign expenditures fior procuring goods and services outside Lesotho wou.ld amount to US$4.8 million or 69 percent of total outlays. An allowance oK 20 percent was applied, as physical contingencies for site investigations and all civil works involving surface water intakes and/or raw water sto-age at each of the towns. A 10 percent physical contingency allowance was a: sumedi for all other components. To cover price escalation, allowances of 9 pe :cent for 1979 and 8 percent for each succeeding year have been applied. The proposed IDA Credit of US$6.0 million would finance all foreign expenditi:ras and approximately US$1.2 million equivalent of local costs and would cov(.r about 86 percent of the total project costs. The Government will financs about US$1.0 million equivalent. In order to encourage WSB to operate ol: a commercial basis, the Government will make available to WSB the US$6.0 million proceeds of IDA Credit at 7.5 percent annual interest over 24 yeair3 - 11 - including four years grace (Section 3.01(c) of the draft Credit Agreement and para. 51). There has been no comparable lending in the sector and funds generally have been made available to public enterprises as grants or at very low interest rates. Inflation during 1976-78 averaged about 12 percent annually; inflation is expected to be at a rate of nine percent in 1979 and eight percent thereafter. Project Area 38. Each of the project towns is a regional population center with importance as the site of regional institutions such as hospitals, schools, missions and, except Roma, district administration centers. The administra- tion of the water supply and sewerage system in Roma, the site of the National University of Lesotho, which presently is outside the jurisdiction of WSB, will be transferred to WSB by March 31, 1980 (Section 4.10 of the draft Credit Agreement). Six of the towns are in the region of the country where intensive agriculture, a prime objective of the national development program, is possible and whaere the IDA-financed Lesotho Basic Agricultural Project (Credit 795-LSO) is located. The seventh town, Mokhotlong, is in the north- east mountains, an area which has mineral potential. Four of the towns are on the country's few paved highways. In all cases, population growth is ex- pected to match or exceed the national average. Project Implementation 39. WSB, assisted by consultants, would be responsible for project implementation. Engineering consultants would be utilized for detailed design, preparation of tender documents, evaluation of tenders and super- vision of construction. In addition, during the project period consultants would make feasibility studies required for the preparation of a Phase II project. WSB recently engaged Binnie and Partners (Binnie), a UK firm which participated in project preinvestment studies, to design the KfW-financed water supply project; it is expected that Binnie would be retained on the project. On that basis initial investigations and design of the project are expected to begin by mid-1979 and commissioning of the physical com- ponents is planned for mid-1982. 40. WSB has until now been headed by a Chief Water and Sewerage Engineer, with limited responsibility and authority over personnel and accounting matters, as these matters have largely been dealt with by MW's personnel branch and ME staff. The Government has recognized that WSB should be given greater autonomy, and in May 1978, as a first step, the Minister of Finance issued directions covering the establishment of a "Water and Sewerage Service Trading Account" under MW and the appointment of a Chief Executive Officer. The Chief Executive Officer, who is to be a member of a Board controlling WSB's activities, will be responsible for the efficient management of Water Supply and Sewerage Services and for all staff including accountants. - 12 - Powers regarding appointment, promotion and dismissal of staff have also re- cently been delegated to WSB, and permission to open a separate bank acccunt for WSB's transactions has been obtained from the Ministry of Finance. A. Chief Executive Officer and a Financial Controller are to be appointed prior to effectiveness of t:he Credit Agreement (para. 51). The borrower will ensure that a qualified Chief Executive Officer and a Financial Control:Ler will be maintained in their positions with appropriate powers (Sections 3.01(b) of the draft Credit Agreement). Appointment of two qualified wELter supply engineers would be a condition of credit effectiveness (Section 5.01 (a) of the draft Credit Agreement). Environmental Health and Safety Aspects 41. The project. is expected to bring some improvement in public h(i:alth, although in order to derive maximum environmental benefit from investments in water supply facilities, a complementary program of public health ediuca- tion and improved standards for operating water systems is needed. The projects financed by USAID (para. 17) are expected to help in these are..s. Implementation of the. project will be closely coordinated with MHSW sta:Ef at all levels to assure that appropriate environmental health is maintained in each of the project towns. To help ensure that public health measures related to the project are adequate, the Government intends to carry out a study covering public health education needs through 1982 in the water supply and sanitation sectors and exchange views with the Association or. the study and means for implementing its recommendations. 42. The proposed project dams are relatively small and carry litt:.e risk to life or property. Although WSB currently neither owns nor operXitis dams outside Maseru, future operation by WSB does not appear to pose anm undue risk. Procurement and Disbursement 43. Except as indicated below all procurement financed by the proIlo:sed credit would be awarded on the basis of international competitive biddinlg in accordance with Ba.nk Group guidelines. Although there are no suitable local civil works con.tractors at present, provision for a 7-1/2 percent preference on bids by local firms has been made, at the borrower's request:, in case suitable domestic civil works contracting capability develops ir. 1:ime. Contracts for the prccurement of single units or for groups of items of equipi- ment, vehicles or spare parts estimated to cost less than US$25,000 eact., and not exceeding US$100,000 equivalent in the aggregate, may be awarded after solicitation of quotations from at least three suppliers. Minor civil w:rks amounting to about US$0.7 million equivalent may be constructed by the Cnern- ment through force account, in which case only the material would be finariced by IDA. In order to expedite progress and effectively coordinate with twe! Kflw- financed six towns water supply project, GOL will begin the implementatiDr of the project shortly. Retroactive financing of up to US$100,000 equivale at: to finance detailed dam site investigations and design by the engineering consultants is recommended. - 13 - 44. The IDA Credit would be disbursed as follows: (i) 86 percent of total expenditure on civil works, excluding works constructed under force account, if any; (ii) 100 percent of foreign expenditures and 90 percent of local expenditures for materials for work carried out under force account, if any, and for vehicles, equipment or spare parts; and (iii) 100 percent of foreign expenditures and 80 percent of local expenditures for consulting services. 45. Accounts, Audit and Reporting. WSB would have its accounts audited annually by auditors acceptable to the Association, and would furnish such accounts to the Association within nine months after the end of fiscal year 1980 and not later than six months after the end of sub- sequent fiscal years (Section 4.02(b)(ii) of the draft Credit Agreement). As the Government's Audit Department does not have the staff to audit commercial accounts, the Auditor General will delegate his responsibility to a private firm. In addition, within six months after project implementa- tion, WSB would prepare and submit to the Association a project completion report (Section 3.04(c) of the draft Credit Agreement). Justification, Benefits and Risks 46. The project would, by 1986, supply hygienic water to some 20,000 new consumers (an increase of about 95 percent in the seven project towns) who now rely upon unprotected water from springs and streams. It would also improve the reliability of service and water quality for about 21,000 current consumers. The project would strengthen a key institution (WSB), through the appointment of consultants who would design and implement a commercially oriented accounting system and recommend changes in the tariff structure; and by requiring the borrower to have a qualified and experienced Chief Executive Officer and Financial Controller for WSB as well as two additional water supply engineers. 47. The project has many of the characteristics of a rural water supply project due to the small size and nature of the project towns. As indicated in para. 34, project water consumers, together with WSB consumers located elsewhere, would pay a tariff based on the recovery of cash operating costs and debt service. The internal financial rate of return, which would be negative, substantially underestimates the real economic return because health and amenity benefits, as well as consumers' surpluses, for a project such as this are impossible to quantify. Despite this, the project is worth- while because of non-financial benefits described in para. 46. 48. The principal risk is that staffing inadequacies might jeopardize project implementation. However, this risk is minimized by: (i) providing for consultants who will train the accounting staff of WSB; (ii) a training program to be financed by the Government of the Federal Republic of Germany; - 14 - and (iii) requiring the borrower to have a Chief Executive Officer and a Financial Controller for WSB with the necessary qualifications and experiencle and to appoint two additional water supply engineers. As it may take snile time to establish an adequate information system on which to accurately estimate tariff increases needed to meet financial objectives, it is pcssible that the tariff increase estimated to meet operating expenses and debt service may produce :Less than the required revenues. In this case, as in the past, GOL would have to meet any operating cash deficit. PART V - LEGAL INSTRUMENTS AND AUTHORITY 49. The draft ])evelopment Credit Agreement between the Kingdom of Lesotho and the Association and the Recommendation of the Committee provided for in Article V, Section l(d) of the Articles of Agreement are being distributed to the Executive Directors separately. 50. Features oE special interest are referred to in Section III cf Annex III of this report. 51. Conditions for effectiveness of the Credit Agreement would be that (i) the Chief Executive Officer, the Financial Controller and two water supply engineers be appointed; (ii) accounting consultants be appointed to design and assist in the implementation of a commercial accounting system and to undertake or arrange for related-staff trainirng; (iii) arrangements for passing on proceeds of the Credit to WSB be in fuLl force and effect; and (iv) water supply and sewerage tariffs be increased to a level sufficient to cover estimated cash operating expenses and dE!b: service. 52. I am satisfied that the proposed credit would comply with the! Articles of Agreement of the Association. PART VI - RECOMENDATION 53. I recommend that the Executive Directors approve the proposec credit. Robert S. McNamara President Attachments March 6, 1979 - 15 - ANNEX I TABLE 3A LESOTHO - SOCLAL INDICATORS DATA SHEET REFERENCE GROUPS (ADJUSTED AVERAGES LESOTHOA LAND AREA (THOUSAND SQ. IN.) - MOST RECENT ESTIMATE) TOTAL 30.4 SAME SAME NEXT HIGHER AGRICULTURAL 28.5 nDST RECENT GEOGRAPHIC INCOME INCOME 1960 Lb 1970 lb ESTIMATE Lb REGION /L GROUP Ld GROUP Le GNP PER CAPITA (US$) 40.0 80.0 230.0 223.6 182.9 432.3 ENERGY CONSUMPTION PER CAPITA (KILOGRAMS OF COAL EQUIVALENT) .. .. .. 86.7 88.9 251.7 POPULATION AND VITAL STATISTICS TOTAL POPULATION, MID-YEAR (MILLIONS) 0.9 1.1 1.3 URBAN POPULATION (PERCENT OF TOTAL) 1.4 2.5 3.1 13.6 15.0 24.2 POPULATION DENSITY PER SQ. KM. 30.0 36.0 43.0 18.4 46.8 42.7 PER SQ. RH. AGRICULTURAL LAND 32.0 38.0 46.0 53.6 254.1 95.0 POPULATION AGE STRUCTURE (PERCENT) 0-14 YRS. 46.0 f 43.0 39.5 44.4 43.6 44.9 15-64 YRS. 47.0 /f.i 51.0 56.2 52.7 53.3 52.8 65 YRS. AND ABOVE 7.0 6.0 4.3 2.8 2.9 3.0 POPULATION GROWTH RATE (PERCENT) TOTAL 2.1 2.2 2.2 2.6 2.4 2.7 URBAN 8.0 8.3 6.7 5.8 4.0 8.8 CRUDE BIRTH RATE (PER THOUSAND) 38.9 38.1 39.0 46.9 44.3 42.2 CRUDE DEATH RATE (PER THOUSAND) 24.4 21.7 19.7 20.6 19.7 12.4 GROSS REPRODUCTION RATE .. 2.5 2.5 3.1 2.9 3.2 FAMILY PLANNING ACCEPTORS, ANNUAL (THOUSANDS) USERS (PERCENT OF MARRIED WOMEN) .. .. .. 2.5 14.6 14.2 FOOD AND NUTRITION INDEX OF FOOD PRODUCTION PER CAPITA (1970-100) 117.7 100.0 109.5 94.2 96.4 104.3 PER CAPITA SUPPLY OF CALORIES (PERCENT OF REQUIREMENTS) 92.0 95.0 109.0 90.1 92.3 99.5 PROTEINS (GRAMS PER DAY) 63.7 .. 67.6 55.2 50.0 56.8 OF WHICH ANIMAL AND PULSE .. .. .. 17.1 13.9 17.5 CHILD (AGES 1-4) MORTALITY RATE .. .. 1.0 .. .. 7.5 REALTH LIFE EXPECTANCY AT BIRTH (YEARS) 38.4 43.5 46.0 43.7 45.8 53.3 INFANT MORTALITY RATE (PER THOUSAND) 181.0 /f 114.4 114.0 138.4 102.7 82.5 ACCESS TO SAFE WATER (PERCENT OF POPULATION) TOTAL .. 3.0 17.0 22.4 26.4 31.1 URBAN .. 100.0 65.0 66.3 63.5 68.5 RURAL .. 1.0 14.0 10.4 14.1 18.2 ACCESS TO EXCRETA DISPOSAL (PERCENT OF POPULATION) TOTAL .. 11.0 13.0 23.9 16.1 37.5 URBAN *- 44.0 51.0 70.3 65.9 69.5 RURAL .. 10.0 12.0 14.2 3.4 25.4 POPULATION PER PHYSICIAN .. 31190.0 23820.0 21757.5 13432.7 9359.2 POPULATION PER NURSING PERSON 7710.0 /h 3800.0 /h 2070.0 /h 3473.8 6983.3 2762.5 POPULATION PER HOSPITAL BED TOTAL 720.0 Lt 570.0 560.0 645.4 1157.6 786.5 URBAN .. 70.0 70.0 172.9 183.3 278.4 RURAL .. 720.0 710.0 1292.6 1348.8 1358.4 ADMISSIONS PER HOSPITAL BED .. .. .. 19.2 19.5 19.2 HOUSING AVERAGE SIZE OF HOUSEHOLD TOTAL .. .. .. 4.9 5.2 URBAN .. .. .. 5.0 4.8 RURAL .. .. .. 4.7 5.3 AVERAGE NUMBER OF PERSONS PER ROOM TOTAL .. .. .. URBAN .. .. .. .. 1.8 2.3 RURAL .. .. .. ACCESS TO ELECTRICITY (PERCENT OF DWELLINGS) TOTAL .. .. .. .. 25.9 28.3 URBAN .. .. .. RURAL .. .. .. .. 8.7 10.3 . . . .. . . . . . .- - --.- - - - - - - - - - - - - - - - - - - --.- - - 16 - ANtIEX I TABLE 3A LESOTHO - SOCIAL INDICATORS DATA SER'T REFERENCE GROUPS (ADJUSTED AVERAGES LESOTHOL - MOST RECENT ESTIMATE) SAME SAME NEXT HIGHER MOST RECENT GEOGRAPHIC INCOME INCOME 1960 /b 1970 Lb ESTIMATE Lb REGION /c GROUP Jd GROUP Le EDUCATION ADJUSTED ENROLLMENT RATIOS PRIMARY: TOTAL 83.0 95.0 121.0 52.1 62.9 75.8 FEtALE 103.0 113.0 144.0 37.6 45.9 67.9 SECONDARY: TOTAL 3.0 7.0 14.0 8.0 14.4 17.7 FEKALE 4.0 8.0 15.0 5.0 8.8 12.9 VOCATIONAL (PERCENT OF SECONDARY) 23.0 8.0 5.4 7.2 6.6 7.4 PUPIL-TEACHER RATIO PRIMARY 54.0 46.0 53.0 43.2 38.5 34.3 SECONDARY 20.0 22.0 22.0 22.8 19.8 23.5 ADULT LITERACY RATE (PERCENT) .. .. 40.0 20.3 36.7 63.7 CONSUMPTION PASSENGER CARS PER THOUJSAND POPULATION 3.0 a 2.0 4.0 3.9 3.1 7.2 RADIO RECEIVERS PER THOUSAND POPULATION 6.0 5.0 11.0 40.1 31.1 71.1 TV RECEIVERS PER THOUSAND POPULATION .. .. .. 2.2 2.8 14.1 NEWSPAPER ("DAILY GENERAL INTEREST") CIRCULATION PER THOUSAND POPULATION .. .. .. 3.9 6.0 16.3 CINEMA ANNUAL ATrENDANCE PER CAPITA .. .. .. 1.2 1.4 1.6 EMPLOYMENT TOTAL LABOR FORCE (THOUSANDS) .. .. 540.0 /k FEMALE (PERCENT) 33.7 44.6 44.6 32.6 24.2 28.0 AGRICULTURE (PERCENT) 93.4 89.7 90.0 73.3 60.7 54.1 INDUSTRY (PERCENT) 2.2 3.2 PARTICIPATION RATE (PERCENT) TOTAL 56.5 55.8 54.3 42.0 39.8 37.8 MALE 62.4 62.7 61.2 54.8 53.3 50.3 FEMALE 50.9 49.1 47.6 27.3 19.6 20.9 ECONOMIC DEPENDENCY RATIO .. .. 1.0 1.2 1.3 1.3 INCOME DISTRIBUTION PERCENT OF PRIVATE INCOME RECEIVED BY HIGHEST 5 PERCENT OF HOUSEHOLDS .. .. .. 25.7 20.3 19.5 HIGHEST 20 PERCENT OF HOUSEHOLDS .. .. .. 55.1 45.1 48.9 LOWEST 20 PERCENT OF HOUSEHOLDS .. .. .. 5.8 5.7 5.9 LOWEST 40 PERCENT OF HOUSEHOLDS .. .. .. 14.5 16.8 15.7 POVERTY TARGET GROUPS ESTIIMATED ABSOLUTE POVERTY INCOME LEVEL (US$ PER CAPITA) URBAN .. .. .. 108.8 88.5 155.9 RURAL .. .. .. 74.1 71.9 97.9 ESTIMATED ]lELATIVE POVERTY INCOME LEVEL (US$ PER CAPITA) URBAN .. .. .. 124.4 100.8 143.7 RURAL .. .. .. 59.6 42.0 87.3 ESTIMATED POPULATION BELOW POVERTY INCOME LEVEL (PERCENT) URBAN .. .. .. 26.8 46.0 22.9 RURAL .. .. .. 47.6 48.0 36.7 Not available Not applicable. NOTES /a The adjusted group averages for each indicator are population-weighted geometric means, excluding the extr ant values of the indicator and the most populated country in each group. Coverage of countries among the indicators depends on avaiLlability of data and is not uniform. /b Unless otherwise noted, data for 1960 refer to any year between 1959 and 1961; for 1970, between 1969 and 1971; and for Most Recent Estimate, between 1973 and 1977. c Africa South of Sahara; /d Low lncome ($280 or less per capita, 1976); /e Lower Middle Income ($281-550 per capita, 1976); /f 1956; L& age 15-59 and 60 years and over respectively; /h In- cluding midwives; 1i 1962; /i. 1965; /k Including migrant labor in South Africa. September, 1978 -17- ANmX I DEFINITIONS OF SOCIAL INDICATORS Ha": The adjusted group averages for each indicator are population-weighted geometric means, excluding the extreme values of the indicator and the most populated country in each group. Coverage of countries among the indicators depends on availability of data and is not uniform. Due to lack of data, group averages for Capital Surplus Oil Exporters and indicators of access to water and excreta disposal, housing, income distribution and poverty are simple population-weighted geometric means without the exclusion of extreme values. LAND AREA (thousand sq. kb) Population per hospital - total, urban, and rural - Population (total, Total - Total surface area comprising land area and inland waters urban and rural) dlded by their respective number of hospital beds Agricultural - MNet recent estimate of agricultural area used temporarily available in public and private general and specialized hospital and re- or permanently for crops, pastures, market and kitchen gardens or to habilitation centers. Hospitals are establishments permanently staffed by lie fallow. at least one physictan. Establishments providing principally custodial care are not included. Rural hospitals, however, include health and nedi- GNP PER CAPITA (USS) - GNP per capita estimates at current market prices, cal centers not permanently staffed by a physician (but by a medical as- calculated by sane conversion method as World Bank Atlas (1975-77 basis); sistant, nurse, midwife, etc.) which offer in-patient accommodation and 1960, 1970, and 1977 data. provide a limited range of medical facilitie. Admissions per hospital bed - Total number of admissions to or di-charges ENERGY CONSUMPTION PER CAPITA - Annual conaumption of commercial energy from hospitals divided by the number of beds. (coal and lignite, petroleum, natural gas and hydro-, nuclear and geo- thermal electricity) in kilograms of coal equivalent per capita. HOUSING Average size of household (persons per household) - total, urban, and rural- POPULATION AND VITAL STATISTICS A household consists of a group of individuals who share living quarters Total population, mid-year (millions) - As of July 1; if not available, and their main meals. A boarder or ledger may or may not be included in average of two end-year estimates; 1960, 1970, and 1977 data, the household for statistical purposes. Statistical definitions of house- . Urban population (percent of total) - Ratio of urban to total popula- hold vary. tion; different definitions of urban areas may affect comparability Average number of persons per room - total, urban, and rural - Average nun- of data among countries. ber of persons per room in all, urban, and rural occupied conventional Population density dwellings, respectively. Dwellings exclude non-permanent structures and Per sq. km. - Mid-year population per square kilometer (105 hectares) unoccupied parts. of total area. Access to electricity (percent of dwellings) - total, urban, and rural - Per sq. km. agriculture land - Computed as above for agricultural land Conventional dwellings with electricity in living quarters as percentage only. of total, urban, and rural dwellings respectively. Populatios age structure (percent) - Children (0-14 years), working-age (15-64 years), and retired (65 years and over) as percentages of mid- EDUCATION year population. Adjusted enrollment ratios Population growth rate (percent) - total, and urban - Compound annual Primary school - total, and female - Total and female enrollment of all ages growth rates of total and urban mid-year populations for 1950-60, at the primary level as percentages of respectively primary school-age 1960-70, and 1970-75. populations; normally includes children aged 6-11 years but adjusted for Crude birth rate (per thousand) - Annual live births per thousand of different lengths of primary education; for countries with universal edu- mid-year population; ten-year arithmetic averages ending in 1960 and cation enrollment may exceed 100 percent since some pupils are below or 1970 and five-year average ending in 1975 for most recent estimate, above the official school age. Crude death rate (per thousand) - Annual deaths per thousand of mid- Secondary school - total, and female - Computed as above; secondary educa- year population; ten-year arithmetic averages ending in 1960 and 1970 tion requires at least four years of approved primary instruction; pro- and five-year average ending in 1975 for most recent estimate. vides general vocational, or teacher training instructions for pupils Gross reproduction rate - Average number of daughters a woman will bear usually of 12 to 17 years of age; correspondence courses are generally in her normal reproductive period if she experiences present age- excluded. specific fertility rates; usually five-year averages ending in 1960, Vocational enrollment (percent of secondary) - Vocational institutions in- 1970, and 1975. clude technical, industrial, or other programs which operate independently Family planning - acceptors, annual (thousands) - Annual number of or as departments of secondary institutions. acceptors of birth-control devices under auspices of national family Pupil-teacher ratio - primary, and secondary - Total students enrolled in planning program. primary and secondary levels divided by numbers ofeachers in the corre- Family_planning - uers (percent of married women) - Percentage of sponding levels. tS married women of child-bearing age (15-44 years) who use birth-control Adult literacy rate (percent) - Literate adults (able to read and write) as devices to all married women in same age group. a percentage of total adult population aged 15 years and over. FOOD AND NUTRITTION CONSUMPTION loden of food production per capita (1970.100) - Index number of per Passenger cars (per thousand population) - Passenger cars comprise motor cars capita annual production of all food commodities. seating less than eight persons; excludes ambulances, hearses and military Per capita supply of calories (percent of requirements) - Computed from vehicles. energy equivalent of net food supplies available in country per capita Radio receivers (per thousand population) - All types of receivers for radio per day. Available supplies comprise domestic production, imports less broadcasts to general public per thousand of population; excludes unlicensed exports, and changes in stock. Net supplies exclude animal feed, seeds, receivers in countries and in years when registration of radio sets wan in quantities used in food processing, and losses in distribution. Re- effect; data for recent years may mnt be comparable since most countries quirements were estimated by FAO based on physiological needs for nor- abolished licensing. mel activity and health considering environmental temperature, body TV receivers (per thousand population) - TV receivers for broadcast to genera weights, age and sex distributions of population, and allowing 10 per- public per thousand population; excludes unlicensed TV receivers in noun- cent for waste at household level. tries and in years whem registration of TV sets was in effect. Per ca.pit supply of protein (grams per day) - Protein content uf per Newspaper circulation (per thousand population) - Shows tho average circula- capita net supply of food per day. Net supply of food is defined as tion of "daily general interest newspaper", defined as a periodical publi- above. Requirements for all countries established by USDA provide for cation devoted primarily to recording general news. It is considered to a minimum allowance of 60 grams of total protein per day and 20 grams be "daily" if it appears at least four times a week. of animal and pulse protein, of which 10 grams should be animal protein. Cinema annual attendance per capita per year - Based on the number of tickets These standards are lower than those of 75 grams of total protein and sold during the year, including admissions to drive-in cineman and nobile 23 grams of animal protein as an average for the world, proposed by units. FAO in the Third World Food Survey. Per capita protein supply from animal and pulse - Protein supply of food EMPLOYMENT derived from animals and pulses in grams per day. Total labor force (thousands) - Economically active persons, including armed Child (ages 1-4) mortality rate (per thousand) - Annual deaths per thous- forces and unemployed but excluding housewives, students, etc. Defini- and in age group 1-4 years, to children in this age group. tions in various countries are not comparable. Female (percent) - Female labor force as percentage of total labor force. HEALTH Agriculture (percent) - Labor force in farming, forestry, hunting and fishing Life expectancy at birth (years) - Average number of years of life as percentage of total labor force. remaining at birth; usually five-year averages ending in 1960, 1970, Industry (percent) - Labor force in mining, construction, manufacturing and 'and 1975. electricity, water and gas as percentage of total labor force. Infant mortality rate (per thousand) - Annual deaths of infants under Participation rate (percent) - total, male. and female - Total, male, and one year of age per thousand live birhts. female labor force as percentages of their respective populations. Access to safe water (percent of population) - total, urban.Atsd rural - These are ILOTs adjusted participation rates reflecting ape-sen Number of people (total, urban, and rural) with reasonable access to strocture of the population. and long tine trend. safe water supply (includes treated surface waters or untreated but Economic dependency ratio - Ratio of population under 1S and 65 and over tc uncontaminated water such as that from protected boreholes, springs, the labor force in age groop of 15-64 years. and sanitary wells) as percentages of their respective populations. In an urban area a public fountain or standpost located not mare INCOME DISTRIBUTION than 200 meters from a house may be considered as being within rea- Percentage of private income (both in cash and kind) received by richest 5 aonable access of that house. In rural areas reasonable access would percent, richest 20 percent, poorest 20 percent, and poorest 40 percent imply that the housewife or members of the household do not have to of households. spend a disproportionate part of the day in fetching the family's water needs. POVERTY TARGET GROUPS Access to emcreta disposal (percent of population) - total, urban, and Estimated absolute poverty income level (USS per capita) - urban and rural - rural - Number of people (total, urban, and rural) aerved by e-reta Absolute poverty income level is that i-come level below which a minimal disposal as percentages of their respective populations. Excreta nutritionally adequate diet plus essential non-food requirements is act disposal mlay include the collection and disposal, with or without affordable. treatment, of human eacreta -c waste-water by water-borne systems Estimated relative poverty income level (USS per capita) - urban and rural - or the use of pit privies and similar installations. Relative poverty income level is that income level less than one-third Population per physician - Populoti.o divided by number of practicing per capita personal income of the country. physicians qualified from a medical acheol at university level. Estimated population below poverty incose level (percent) - urban and corel - Population per nursing person - Population divided by number of Percent of population (urban and rural) who are either "absolute poor" or practicing male and female graduate nurses, practical nurses, and "relative poor" whichever is greater. assistant nurses. Economic and Social Data Division Economic Analysis and Projections Department A - 18 - ANNE) I ECONOMIC INDICATORS GROSS NATIONAL PRODUCT IN 1977/78 ANNUAL RATE OF GROWfH (8. constatar prices) u Mifln. % 1973/74-1977/78 1977/7R= GNP at Market Pr:Lces 297.6 100.0 8.7 4.9 Gross Domestic Investment W7.6 16.0 9.2 5.3 Gross National Saving 28.0 9.4 Current Account ]3alance -19.6 - 6.6 Exports of Goods, NFS 38.0 12.8 1.3 -7.7 Imports of Goods, NFS 2L6.4 72.7 18.0 7.6 OUTPUT, LABOR FORCE AND PFDUCTMTY IN 197 6/77 Value Added Labor ForceIL/ V. A. Par Worker US$ Mln. us _ %or Agriclture 50.1 41.0 343 91 146 45 Industry 12.4 10.2 7 2 1771 545 Services 59.7 48.8 26 7 2296 706 Unallocated Total/Average 122.2 100.0 376 100.0 GOVERINI4T FINANCE General Goverment Central Oovernent ( ltn.) S of GOP (Rands Jln.) % of GDP 197 197 196 -7 077T78- 1-M7 7fr-745- 7/78 Current Receipts 53.7 33.5 44. Current Expenditure - 45.1 28.2 37. Current Surplus .5. 4 7. Capital Expenditures 25.7 16.0 21. External Assistance (net) 4.7 2.9 3.' MONEY, CREDIT and PRICES 1972 1973 1974 197_ 1976 197 (Million rands outstandingend pertiod) Money and Quasi Money Bank credit to Public Sector 2.6 3.2 2.6 3.2 6.4 12.8 Bank Credit to Private Sector 4.8 5.7 8.6 8.4 11.6 13.6 (Percentages or Index Numbers) Money and Quasi Money as % of GDP .. .. ... General Price Index ( 1972- 100) 2/ 100.0 112.8 122.4 140.8 155.6 L83.2 Annual percentage changes ins General Price Index .. 12.8 8.5 15.0 10.5 17.7 Bank credit to Public Sector 100.0 23.0 -18.7 23.0 100.0 LOJ.0 Bank credit to Private Sector 11.6 18.8 50.9 -3.2 38.1 17.2 NOTEt All conversions to dollars in this table are at the average exchange rate prevailing during the periLod covered. 1/ Provisional. Covers urban households with annual income of less than R500. not available not applicable March 6, 1978 EACPI - 19 - ANNEX I TRADE PAYMENTS AND CAPITAL FIWS BALANCE OF PAYMENTS MERCHANDISE EXPORTS (AVERAGE 1975-77) 1975 1976 1977 US $ Mln % (Millions US $) Exports of Goods, NFS 29.1 37.3 38.0 Cattle 0.3 2.1 Imports of Goods, NFS 154.5 188.8 216.4 Wool 2.2 15.4 Resource Gap (deficit = -) - - - Mohair 2.5 17.5 25.4 -151.6 -178.5 Food 2.4 16.8 Interest Payments (net) .. .. .. Other 6.9 48.3 Workers' Remittances 86.3 98.4 113.4 Other Factor Payments (net) Net Transfers 25.4 26.2 45.5 All other commodities Balance on Current Account - - - Total 14.3 100,0 -13.7 -26.5 -19.6 Direct Foreign Investment .. .. .. EXTERNAL DEBT, DECEMBER 31, 1976 Net MLT Borrowing Disbursements .. .. .. US $ Mln Amortization Subtotal .. .. .. Public Debt, incl. guaranteed 15.4 Capital Grants .- .- .. Non-Guaranteed Private Debt Other Capital (net) .. .. .. Total outstanding & Disbursed Other items n.e.i Increase in Reserves (+) .. .. .. DEBT SERVICE RATIO for 1976 6 Gross Reserves (end year) Net Reserves (end year) . . . Public Debt, incl. guaranteed 1.3 Non-Guaranteed Private Debt Fuel and Related Materials Total outstanding & Disbursed Imports 9.7 13.4 of which: Petroleum Exports of which: Petroleum .- . . IBRD/IDA LENDING, December 1978 (Million US$): IBRD IDA RATE OF EXCHANGE 1974 1975 1976 1977 1978(July) Outstanding & Disbursed * 17.0 US$1.00 = R 0.679 0.732 0.870 0.870 0.870 Undisbursed . 18.2 R1.OO = US$ 1.472 1.367 1.150 1.150 1.150 Outstanding incl. Undisbursed 35.2 1/ Ratio of Debt Service to Exports of Goods and Non-Factor Services. . . not available not applicable March 6, 1978 EACPI ANtEX II _ 20 - STATUS OF BANK GROUP OPERATIONS IN LESOTHO A. STATEMENT OF IDA CREDITS (As at December 31, 1978) Amount (less cancella- tions, reimtliased, terminations) (US$ million) Credit Year Borrower Purpose IDA Undis,bursed 82-BL 1966 Basutoland Road Development 4.1 - 361-LSO 1973 Lesotho Thaba Bosiu Rural 5.6 l.I Development Project 497-LSO 1974 Lesotho Education Development 4.0 :.2 619-LSO 1976 Lesotho Second Highway 5.5 702-LSO 1977 Lesotho DFC 2.5 .4 748-LSO 1977 Lesotho Second Education 7.5 '.4 795-LSO 1978 Lesotho Basic Agricultural Services Project 6.0 ___ Total 35.2 1E.2 oE which has been repaid 0.1 Total now held by IDA 1/ 35.1 Total undisbursed 18.2 Note: Lesotho has received no Bank loans. 1/ Prior to exchange adjustments. - 21 - B. STATEMENT OF IFC INVESTMENTS US$000 Equivalent Investment No. Year Company Type of Business Loan Equity Total 405-LSO FY78 Lesotho Quality Stone Quarrying 290 31 321 Aggregate Industries (PPY) C. PROJECTS IN EXECUTION 1/ Credit No. 497-LSO Education I Project; US$4.0 million; July 25, 1974; Effectiveness Date: January 23, 1975; Closing Date: March 31, 1979. The project is proceeding satisfactorily and is expected to be com- pleted shortly and accounts and withdrawals finalized by the March 31, 1979 credit closing date. Educational objectives are expected to be realized when the physical facilities are completed and put into use. Costs are within the original appraisal estimates. Credit No. 619-LSO Second Highway Project; US$5.5 million; March 10, 1976; Effectiveness Date: July 28, 1976; Closing Date: December 31, 1980. The project is proceeding satisfactorily. The civil works contract is progressing in accordance with the implementation schedule agreed at nego- tiations. The Labor-Intensive Construction Unit (LCU) component which started about four months behind schedule, mainly due to delay in selection of consul- tants, is now operational. Practically all the funds earmarked for the LCU have been committed. Credit No. 702-LSO Development Finance Company Project (DFC); US$2.5 million; May 20, 1977; Effectiveness Date: August 23, 1977; Closing Date: December 31, 1981. So far US$900,000 have been committed. Because of management changes and delays in recruiting key staff, LNDC has made slow progress in improving its organization, staffing, procedures, and portfolio. LNDC's financial situa- tion has not yet improved, but it will continue to get financial support from the Government as expected. 1/ These notes are designed to inform the Executive Directors regarding the progress of projects in execution, and in particular to report any problems which are being encountered, and the action being taken to remedy them. They should be read in this sense, and with the understanding that they do not purport to present a balanced evaluation of strengths and weaknesses in project execution. ANM!EX II - 22 - Credit No. 748-LS0 Second Education Project: US$7.5 milliorn; Novembe _ 30, 1977; Effectiveness Date: March 30, 1978; Closing Date: December 31, 1981. The project: was declared effective March 30, 1978, about one :acnth beyond the originally specified date, February 28, 1978. Delays in pro-ject execution are directly related to staffing of the architectural team wh:'ch has affected the cred,it's effectiveness and also implementation. Since the project architect has been hired the progress has been good. Plans for the National Curriculum Development Center at Leribe are well advanced, an,[ design work is progressing well for all the other project components. 'I:rDcu-re- ment preparations for furniture and equipment have been initiated. The Project Unit established to administer Credit 497-LSO is also responsible for implementing the second project. Credit No. 795-LSO Basic Agricultural Services Project: US$6.0 millicn; May 25, 1978; Effectiveness Date: August 3, 1978; Closing Date: March 31, 1985. The project continues to make good progress with its recruitment and building program. The training of agricultural staff has now been started at a newly desveloped center at Leribe. There appears to be an increasing aware- ness on the part of t'he Ministry of Agriculture of the need to provide En agreed set of guidelines to agricultural extension staff, but action has not yet been taken to withdraw the widely conflicting official recommendations now lsing given. BASP is slowly being drawn into a more central role in the Minis try but is not yet: in a position to decisively influence agricultural strategy. The marketing component of the project is being reviewed by BASP Management ir. the light of the declining volume of produce being handled by the Produce Mazketing Corporation and its consequent financial difficulties. ANNEX III - 23 - SUPPLEMENTARY PROJECT DATA SHEET I. Timetable of Key Events (a) Time taken to prepare project: 36 months (b) Prepared by GOL/KfW (c) Initital discussions with IDA: December 1977 (d) First IDA mission January 1978 (e) Appraisal mission departure May 4, 1978 (f) Negotiations January 23-24, 1979 (g) Planned date of effectiveness: June 1979 II. Special IDA Implementation Actions None III. Special Conditions of the Project (a) GOL and WSB, after consultation with the Association about the recommendations of the accounting consultants, will implement such recommendations as are considered appropriate, on a time schedule to be agreed with the Association, including the prompt recruitment of any additional staff needed to establish effective accounting procedures (para. 31). (b) The borrower will, not later than September 30, 1980, establish financial performance standards acceptable to the Association including, inter alia, the requirement to produce annual re- venues sufficient to cover all operating expenses including depreciation and a reasonable return on assets used by WSB's services (para. 33). (c) Additional conditions of credit effectiveness would be (a) appoint- ment of a Chief Executive Officer, a Financial Controller and two water supply engineers; (b) appointment of accounting consultants to design and assist in the implementation of a commercial account- ing system and to undertake or arrange for related staff training; (c) completion of arrangements for passing on proceeds of the Credit to WSB; and (d) water supply and sewerage tariffs have been raised to a level sufficient to cover cash operating costs and debt service (para. 51). I K .A.T A. .....A.. 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