Section Four
1996 Regional PerspectivesSOUTH ASIA
In 1995, South Asian economies grew by 5.3 percent. India continued to reap substantial benefits from the trade and investment-liberalization reforms undertaken after 1991. Helped by favorable monsoons, growth is estimated to be around 6 percent, while manufacturing output growth has averaged 10 percent in the past two years. In Nepal growth reached a respectable 4.5 percent, and in Pakistan growth recovered after being held down by a series of poor cotton crops. By contrast, in Bangladesh and in Sri Lanka political difficulties and the continuation of civil strife, respectively, have contributed to dampen private sector dynamism and restrain growth.
Export performance remained vigorous, reflecting trade reforms, exchange adjustments and buoyant world demand. Since 1991, the annual average export growth rate for the region has exceeded 10 percent, compared with an average of 5.6 percent for the 198190 period. Nevertheless, exports of goods and nonfactor services represent less than 15 percent of domestic output, well below the average for developing countries. Although recent reforms have succeeded in lowering trade barriers, South Asian tariffs remain far higher than those in other regions. As a result, they remain an impediment to growth because, in conjunction with other trade restrictions, they create distortions and can lead to resource misallocation.
Regional cooperation received a boost with the ratification by members of the South Asia Association of Regional Cooperation (SAARC) of a trade agreement that included bilateral trade concessions that brought about cuts, ranging from 10 percent to 100 percent in tariff rates covering more than 220 items. Although the trade impact is likely to be small given the low share of intraregional trade, the SAARC countries9 have indicated their intention to initiate negotiations towards establishing a free trade area in the near future.
Reform programs and the active engagement in the world economy by South Asian countries are now paying off in terms of higher foreign investment. Private capital is becoming increasingly important and now accounts for close to 50 percent of the resource flows to the region, compared with 25 percent in 1990. Although aggregate resource flows fell in 1995 due to a decline in overall portfolio flows following the devaluation of the Mexican peso in December 1994, they were still much higher than in 1993. Foreign direct investment reached a record $2.8 billion, and although India was the largest recipient (receiving about $2 billion), the other countries in the region also shared in the increase. Debt indicators showed a marked improvement as the South Asian economies saw the growth of their export earnings outpace the increase in their debt. All countries improved their debt-to-export ratios and debt-to-gross national product ratios. South Asian economies are the only group of developing countries that has not restructured its debt in the past decade and has incurred almost no arrears to external creditors. But maintaining sound economic fundamentals and pushing ahead with economic reforms are essential if the region is to take full advantage of the enormous potential for further growth in private capital flows to the region. The reduction of poverty and the improvement of living conditions continue to be the major objectives of the countries in the region. Although the incidence and depth of poverty have declined since the late 1980s, the number of poor has increased. The most recent estimates suggest that about 43 percent of the region's population lives on incomes of less than $1 a day and that South Asia, with 22 percent of the world's population, accounts for 40 percent of the world's poor. The poor in South Asia tend to be located in rural areas, to be illiterate, and to depend on subsistence agriculture and low-skill wage employment for their livelihood. Thus the importance of policies that raise rural incomes.
High and sustained growth that takes place in an environment of sound economic management is essential for the reduction of poverty. The good performance of the 1980s that lessened poverty was not sustainable because it led to large fiscal and balance-of-payments imbalances. But growth is not by itself sufficient to reduce poverty. South Asia's social indicators are very poor. Average life expectancy at birth is sixty years, half of the adult population is illiterate, and children under the age of five experience the highest mortality rate in the world. (A key factor accounting for the poor social indicators is the region's historically low investment in education and training.) These regional averages, however, mask considerable diversity, both across countries as well as within countries. Sri Lanka and some Indian states, for example, have social indicators that are comparable with those in countries with a higher income per capita.
The status of women is of particular concern since they are less well educated, have lower life expectancy, and work longer hours than men. Increasing the access of women to basic education, health and nutrition services, and water and sanitation is essential.
Table 4-7 Achieving major poverty reduction is feasible. But to sustain more rapid growth and integration in the world economy in the coming years, South Asian nations will face tough policy challenges that include addressing the deficiencies in social areas, dealing with infrastructure bottlenecks, reducing still-excessive trade and investment barriers, and extending the scope of competition in domestic factor and product markets.
The Bank continues to support policies that promote sustainable growth, develop human resources, extend the benefits to currently disadvantaged groups (such as poor women), and overcome obstacles to the sustainability of growth, particularly in the environmental and human-resource areas. The current operational strategy in the region emphasizes ways to achieve these objectives through participatory approaches, decentralization, increased involvement by the private sector, and a sharper client focus.
Consensus Building
Building consensus among project beneficiaries through various communication tools--seminars, meetings, media coverage--is an important aspect of improving ownership of, and local commitment to, projects. In many lending and nonlending activities, the Bank has followed a participatory approach, involving large numbers of stakeholders in the preparation of economic and sector work and in project design. The object is to broaden and deepen "ownership" and thus increase the developmental impact of the Bank's activities. The preparation of three studies--Sri Lanka 2000, Pakistan 2010, and Bangladesh Public Sector Management--involved close collaboration with country counterparts. Increased importance is being placed on dissemination of the Bank's analytical work. The Bank's poverty assessment for Pakistan, for example, was the sole subject of a number of seminars that brought together government officials, nongovernment organization (NGO) representatives, staff from donor agencies, private sector representatives, and academics. The assessment also received extensive press coverage.
The formulation of the Teacher Education and Teacher Deployment Project (Sri Lanka), approved in fiscal 1996, involved many in-country seminars and an informal report about solutions to the problems of teacher recruitment and assignment practices. In project preparation, participatory approaches are increasingly becoming the norm. In Bangladesh the Bank focused on building government and donor consensus around a revised scope for the Flood Action Plan that places more emphasis on change in people's behavior and less on physical works. In the Coastal Embankment Rehabilitation Project, designed to prevent the loss of life and property during cyclones and prevent salinity intrusion during normal monsoons, community participation is essential to project success. A community-participation approach is being used to deal with the issues of foreshore and embankment afforestation, routine embankment maintenance, and the resettlement of some 2,000 families displaced by the project. NGOs are being employed to assist in community mobilization, provide training of participants, and facilitate community implementation of project activities.
The implementation of a rural water-supply and sanitation project in Nepal, currently at an advanced stage of preparation, is to be carried out with assistance of local NGOs, private firms, and community-based organizations with a track record in participatory rural development or water supply and sanitation. NGO-implemented schemes in Nepal have in the past performed better than those that have been centrally managed. NGOs have a strong presence in Nepal's water-supply sector, accounting for 10 percent of service delivery. The results of a pilot project that reviewed more than 100 water-supply schemes suggest that communities are more willing to contribute toward capital and operation and maintenance costs--up to 40 percent of the former and 100 percent of the latter--when their input is solicited.
Public participation was integral to the design of Ghazi-Barotha, a run-of-the-river energy project that will help reduce the acute energy shortages in Pakistan. Based on past experience in Pakistan and elsewhere, resettlement action plans have generally suffered from a number of weaknesses, including a lack of public consultation and participation and shortages of funds to compensate the affected population in a timely manner. As a result, an environmental resettlement and review panel was associated with project preparation from the outset. A proactive approach for public participation and consultation was ensured, including the setting up of a public information center at the project site, and sufficient funds for land acquisition were made available well in advance of eminent domain proceedings. An independent organization was also established, tasked with maintaining regular contacts with the local population on land acquisition and compensation issues.
Table 4_8 The Nonformal Education Project in Bangladesh is expected to give "second-chance" education to some 2.5 million people between the ages of fifteen and twenty-four, of whom 1.3 million are expected to be female. The typical beneficiary is likely to be poor and malnourished, live in a rural area, own no land, have little opportunity for occupational or geographical mobility, be illiterate, and be only seasonally employed. The delivery of these programs, designed to provide young adults with literacy, numeracy, and life skills, will be made through qualified NGOs and local organizations. Nongovernmental organizations or other voluntary organizations currently provide most nonformal education instruction in Bangladesh, either in programs focusing on nonformal education only or within broader development projects. The effectiveness of the country's major NGOs (there are some 13,000 NGOs operating in Bangladesh) has been tested by both bilateral and multilateral organizations. At their best, NGO programs have had real and direct relevance to the needs and aspirations of the learners, demonstrated by classes with high attendance and low dropout rates. This has been achieved through the development of needs-based curriculum, participatory teaching methodologies, and materials that start with the experience of the learners and the communities where they live. Beneficiary communities will participate in identifying prospective students, providing shelter for classes, and in recruiting teachers. Women will be encouraged to participate in planning and implementing project activities, and women teachers will be hired to teach female students.
Table 4-9 Decentralization
In many existing operations supported by the Bank there is scope for decentralizing the delivery of the programs. Pakistan and India, with their federal/provincial or state setup, provide the most scope for initiatives toward decentralization. In Pakistan, supervision of the $200 million Social Action Program Project, as well as of various health and education credits, has focused more on provincial implementation, while the Balochistan Primary Education Project, approved in fiscal 1993, has fostered a successful model of community schools (see Box 4-2).
BOX 4-2. COMMUNITY PRIMARY SCHOOLS IN BALOCHISTAN
Involving parents in the process of delivering primary education has had positive results in Balochistan. Village education committees, made up entirely of parents, have established 295 new rural schools that enroll over 12,000 female primary students. The community schools component of the $106 million Balochistan Primary Education Project began as a pilot experiment in 1992 and is now part of a comprehensive program supported by the Bank to improve Balochistan's primary education system. The component is being implemented by the Society for Community Support for Primary Education in Balochistan, an NGO contracted by the Balochistan government.
The society sends teams to selected villages where they go door to door encouraging parents to form village-education committees to identify local females willing to teach and who have at least an eighth grade education. (It has been found that the involvement of parents in the selection of the teacher greatly enhances the accountability of teachers to the communities. The committees also provide assurance to fathers and husbands that it is all right for daughters or wives to work outside the family circle.) Given the short supply of qualified female teachers in rural Balochistan, finding women with enough education to be trained as teachers is the major constraint to the expansion of the program. Selected candidates must pass a competency test, undergo three months of training, and teach without compensation for three months to demonstrate their commitment to teaching and their ability to maintain enrollments. Successful teachers receive a regular teaching post, while the provincial government makes a commitment to build a permanent school in villages in which "trial" schools survive for three years. The village-education committee ensures that teachers and students regularly attend classes.
Government support for the community schools program has grown with its obvious success, and with the growing appreciation of its cost-effectiveness.1 The program is now poised for a major expansion. Three additional NGOs are being contracted by the government to replicate the community-school program throughout Balochistan, and a district-level support structure, which includes improved training facilities for the teachers, is under development. About 80 percent of the costs are being financed by the government; the remainder comes from a UNICEF grant. Teacher salaries are paid through the regular government recurrent budget. Because the community-school program has been so successful, the government is also experimenting with two additional measures involving further devolvement to villages. A rural fellowship program, now a year old, completely decentralizes school management and operations, including the hiring of teachers, to the community. Thirty schools, with enrollment of more than 3,000 students, are currently participating. Under the second measure, urban fellowship vouchers, which provide funds amounting to the salaries of four teachers, are transferred to urban communities, which then hire private providers. Twelve schools, with enrollment of more than 1,500 students, are participating.1. Success can be measured by the high enrollment and low drop-out rates at the community schools. Girls in community schools also score higher on achievement tests than those in regular government schools.
A project in India's Orissa state is representative of the Bank's new lending strategy that emphasizes a state's sector-policy framework and institutional strengthening rather than project-specific issues only. Operations focus on support for institutional and expenditure reform in states that are receptive to reform. The $290.9 million Orissa Water Resources Consolidation Project finances a program to improve the productivity and sustainability of Orissa's water resources, involves farmers in decisionmaking and planning in irrigation management, and strengthens the state institutional and technical capabilities in water development and planning. Orissa was chosen because, in formulating its new water-resources strategy, it had demonstrated a commitment to policy and institutional reforms; multisector water planning, development, and allocation, with attention to environmental concerns; improved service delivery; and enhanced participation by stakeholders. Farmers and other stakeholders are an integral part of the project management and implementation arrangements. Emphasis is also being placed on fostering stakeholder awareness and participation in water planning and management, in particular in areas such as farmer participation in investment decisions, operation and maintenance, monitoring of financial allocations, and achieving full cost recovery. Over time, this stakeholder involvement is expected to foster a demand-driven and client-oriented government service, as well as progressively increase involvement of nongovernment entities in project implementation.
The Second State Health Systems Development Project supports three states in putting into place a referral health-care system. The three--Karnataka, Punjab, and West Bengal--were included in the project because, in addition to their early commitment to undertake health reform, they had forged ahead of other states in setting up a framework to develop a package of policy reforms. The project will contribute to improving resource allocation, strengthening implementation capacity of the agencies in the sector, and enhancing the role of the private sector and of voluntary sectors in the delivery and management of health services.
Bringing in the Private Sector
In South Asia, severe absorptive capacity and implementation deficiencies, coupled with financial constraints, have resulted in chronic underinvestment in infrastructure. The public sector alone does not have the resources to meet the needs of the sector. One constraint to the expansion of the private sector in this area is the lack of available finance on terms commensurate with the typical long gestation and revenue-earning capacity of infrastructure projects. In India, for example, the development of a domestic long-term debt market requires a number of significant policy reforms in the financial sector, particularly as regards regulations applicable to contractual savings institutions. While such a reform program is being formulated, and until its key elements are implemented so that a well-functioning domestic long-term debt market can emerge, domestic financial institutions have to play a major role in supporting private investment in infrastructure. Working with a major nonbanking financial company that is majority privately owned, the Private Infrastructure Finance Project, approved during fiscal 1996, aims to develop the prototype contractual arrangements for private investment in areas such as urban bypasses and bridges, water and sewerage services, and other municipal infrastructure, thus facilitating entry of the private sector in the sector in areas heretofore dominated by the public sector.
The Private Infrastructure Finance Project, as well as the Telecommunications Regulation and Public Enterprise Reform Technical Assistance Project in Sri Lanka are setting up systems to facilitate private investment in formerly publicly provided services. The Bank has been involved in three telecommunications projects in Sri Lanka. The first, closed in 1986, was generally successful in separating the telecommunications and postal departments and supporting expansion of the telephone network. The second supported reforms that separated the service provider from the sector regulator. The most recent continues reform and efficient development of the sector through the strengthening of sector regulation and its institutions. By such strengthening, interest of potential private investors should increase.
Client Focus and Quality of Implementation
The Bank's proactive management of its portfolio has led to major restructuring and supervision efforts to improve project performance. Portfolio management addresses generic issues of quality of entry and of implementation by keeping project designs simple; ensuring that key actions on procurement, land acquisition, and environmental and government clearances are obtained prior to project approval; improving the mechanism for channeling external funds; restructuring or canceling components with little scope for improvement; making greater use of consultants to supervise construction work; and by adhering to the closing dates of loans and credits.
The region has undertaken a major review of internal business processes in an effort to increase efficiencies. Targets that were set for portfolio improvement, with a special focus on the Nepal and Bangladesh portfolios, were closely monitored, and cross-cutting themes in sectors where problems are concentrated (such as agriculture and urban development) were examined. As a result, several steps were taken to improve quality at entry, and ongoing pro-jects were retrofitted with new performance indicators. Other measures included sectoral monitoring of the time taken to prepare lending operations, proactive management of droppages in the lending program, and cost-cutting measures in economic and sector work.
Local input into project supervision has been enhanced by substantial decentralization to field offices. This is the continuation of past efforts that saw the Bank shift a number of tasks--such as task management for some supervision, procurement and auditing oversight, as well as management of economic analysis work, for example--to the resident missions in Bangladesh, India, and Pakistan. The objective of the decentralization exercise, which allows the Bank to take advantage of its field offices' proximity to the client and of their familiarity with social, cultural, and political contexts, is to raise development effectiveness on the ground. During the past year, the Bank's Sri Lanka resident representative assumed responsibility for the management of the Sri Lanka and Maldives programs (including the budget), as well as for the policy dialogue with, and the preparation of the country-assistance strategies for, the two countries.
In Pakistan, responsibility for the supervision of the $200 million Social Action Program (SAP) Project, approved in fiscal 1994, was shifted to the resident mission. The SAP is a complex project that involves frequent and close interactions with federal and provincial governments, NGOs, and local donors. In India, the highly successful initiative represented by the establishment of the procurement and the social development units in the resident mission is being strengthened. In addition, the region's five field offices, together with the Bank's headquarters, reviewed their work programs and identified specific tasks that can be devolved later in a phased manner consistent with the buildup of capacity in the field offices.
Since the beginning of fiscal 1994, the region has undertaken, with borrower participation, country portfolio-performance reviews that address generic issues affecting portfolio performance at the project or sector-specific level. These reviews have resulted, among other things, in supervision focus, at the outset, on projects deemed to be "at risk" and in increased allocation of resources to problem projects with ambitious community objectives such as the Poverty Alleviation Project (Sri Lanka) and the Rural Water Supply and Sanitation Project (Pakistan).
The work program of the Bank's South Asia Regional Office relies heavily on partnerships with other institutions. In particular, collaboration is expanding with the Asian Development Bank through the formal coordination of country-assistance strategies in both institutions. A pilot case in Pakistan has resulted in an exchange of documentation, coordination of sector strategies, and a better division of labor.
The Bank also continues to play a major role in several aid group meetings, such as those for Pakistan and Nepal. The India Development Forum which, since 1994, has included official aid agencies and private investors, last met in June 1995. The forum offers an opportunity for an open exchange of views on topics such as state-level adjustment efforts, the continuity of government policy, and the opportunities for private sector investment in sectors such as infrastructure.
1996 Regional Perspectives
Africa
East Asia and Pacific
Europe and Central Asia
Latin America and the Caribbean
Middle East and North Africa
Footnotes
9. Bangladesh, Bhutan, India, Maldives, Pakistan, and Sri Lanka.
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