Report and Recommendation of the President to the Board of Directors

Project Number: 42166 July 2008

Proposed Loan and Technical Assistance Grant People’s Republic of Bangladesh: Emergency Assistance for Food Security Project

CURRENCY EQUIVALENTS (as of 1 July 2008)

Currency Unit – taka (Tk)

Tk1.00 = $0.01459

$1.00 = Tk68.52

ABBREVIATIONS

ADB – Asian Development Bank ADF – Asian Development Fund DFID – Department for International Development (United Kingdom) EA – executing agency EC – European Commission FAO – Food and Agriculture Organization FAPAD – Foreign Aided Projects Audit Directorate FSSC – food security steering committee GDP – gross domestic product IMED – Implementation Monitoring and Evaluation Division IMF – International Monetary Fund JBIC – Japan Bank for International Cooperation kg – kilogram MOA – Ministry of Agriculture MoFDM – Ministry of Food and Disaster Management PFDS – public food distribution system TA – technical assistance USAID – United States Agency for International Development WFP – World Food Programme

NOTES

(i) The fiscal year (FY) of the Government and its agencies ends on 30 June. FY before a calendar year denotes the year in which the fiscal year ends, e.g., FY2008 ends on 30 June 2008.

(ii) In this report, "$" refers to US dollars, unless otherwise stated.

Vice President L. Jin, Operations Group 1 Director General K. Senga, South Asia Department (SARD) Country Director H. Du, Bangladesh Resident Mission (BRM), SARD Team leader R. K. Khan, Economist, BRM, SARD Team members F. Ahmed, Senior Governance Officer, BRM, SARD S. Ahmed, Economics Officer, BRM, SARD N. R. Britton, Senior Disaster Risk Management Specialist, Regional and

Sustainable Development Department M. Z. Hossain, Country Specialist, BRM, SARD N. Huda, Head, Project Administration Unit, BRM, SARD R. A. O’Sullivan, Senior Counsel, Office of the General Counsel A. K. Saha, Project Implementation Officer, BRM, SARD F. Sultana, Social Development and Gender Officer, BRM, SARD J. Zhang, Natural Resources Economist, SARD

CONTENTS Page

LOAN AND PROJECT SUMMARY i

MAP

I. THE PROPOSAL 1 II. RATIONALE: SECTOR PERFORMANCE, PROBLEMS, AND OPPORTUNITIES 1

A. Performance Indicators and Analysis 1 B. Analysis of Key Problems and Opportunities 2

III. THE PROPOSED PROJECT 11 A. Impact and Outcome 11 B. Outputs 11 C. Special Features 12 D. Project Investment Plan 13 E. Financing Plan 13 F. Implementation Arrangements 14

IV. TECHNICAL ASSISTANCE 16 V. PROJECT BENEFITS, IMPACTS, ASSUMPTIONS, AND RISKS 17

A. Economic Benefits 17 B. Poverty and Social Impacts 17 C. Land Acquisition and Involuntary Resettlement 18 D. Environmental Impacts 18 E. Risks 18

VI. ASSURANCES 18 VII. RECOMMENDATION 19

APPENDIXES 1. Design and Monitoring Framework 20 2. Food-Grain Situation in Bangladesh 22 3. Public Food Procurement 23 4. Major Economic Indicators 24 5. Synopsis of the National Food Policy Plan of Action 25 6. Summary of Safety Net Programs 27 7. Channel-Wise Food Distribution 30 8. Safety Net Program in Bangladesh 31 9. Bangladesh Agriculture Sector Analysis 34 10. List of Permissible Imports 38 11. Procurement Plan 39 12. Technical Assistance for Strengthening the Government’s Institutional Capacity for Improving Food Security 40 13. Summary Poverty Reduction and Social Strategy 44

LOAN AND PROJECT SUMMARY Borrower People’s Republic of Bangladesh Classification Targeting classification: Targeted intervention (TI-H)

Sector: Multisector (health, nutrition, and social protection; law, economic management, and public policy) Subsector: Nutrition, social protection, public finance and expenditure management Themes: Inclusive social development, sustainable economic growth Subthemes: Other vulnerable groups, promoting macroeconomic stability

Environment Assessment

Category C

Project Description Bangladesh, a net importer of food grains, was seriously affected by twin floods and a devastating cyclone in the second half of 2007. Natural disasters causing 1.2 million tons shortfall in rice production adversely affected the food security of 25 million people. Soaring food prices, driven by rising international prices, compounded the food insecurity of millions of people. An additional 12 million people have fallen below the poverty line following the surge in food prices. The Project will improve the food security of the poor and vulnerable people in the face of rising food prices. It will provide short-term transitional support to help the Government meet unexpected high expenditures for safety net programs based on the needs assessment conducted jointly with the Japan Bank for International Cooperation (JBIC) and World Bank with the support of the Food and Agriculture Organization of the United Nations (FAO), International Monetary Fund (IMF), United States Agency for International Development (USAID), and World Food Programme (WFP). The major outputs of the Project are the following:

(i) Output 1: Strengthened open market sales of food grains, with wider coverage to ensure food security for 1.1 million person-months of targeted poor and vulnerable people.

(ii) Output 2: Enhanced food entitlements for 5.4 million person-months for the poor and vulnerable to survive short-term food deficits.

(iii) Output 3: Enhanced purchasing power of the poor and vulnerable by generating rural employment for 1 million person-months.

(iv) Output 4: A more effective and efficient food security monitoring system.

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Rationale The surge in prices of food grains has eroded the purchasing power of the poor and vulnerable, placing them at great risk of hunger and malnutrition. Soaring food prices are undermining the gains in poverty reduction and have pushed large numbers of people back below the poverty line. An additional 8.5% of households have fallen below the poverty line in 2008—this translates into an additional 2.5 million households or 12 million people. People below the poverty line experienced income erosion of 36.7% from January 2007 to March 2008 because of higher food prices. In light of these risks, the Government needs to strengthen safety net programs immediately for the most vulnerable population to cope with the drastic rise in their food bills. The proposed support is an integral part of the overall commitment made by the Asian Development Bank (ADB) in May 2008 to provide urgent budgetary support to the hardest hit countries for safety nets to protect the poor and vulnerable in the face of rising food prices. Those most vulnerable to food price shocks need to be protected from nutritional deprivation, erosion in their real purchasing power, and asset shedding. Failure to protect the poor from income erosion could seriously undermine recent gains in poverty reduction and the political and macroeconomic stability of the country. The overall policy and institutional environment is sound. The Government has taken bold actions to reduce subsidies by substantially raising fertilizer and energy prices, with freed resources exclusively targeting the poor and vulnerable through strengthened safety net programs. The Government has a good record of managing public food distribution through well-targeted and well-managed programs, so there is a solid basis for supporting the envisaged safety net programs. The food for work program also supports the construction and maintenance of essential infrastructure—rural roads, river embankments, irrigation, and other public facilities. Only short-term solutions will be covered by the emergency loan. Medium- and longer-term measures to ensure food security through increased agriculture productivity will be covered under the regular country operational program in support of the national food policy and the plan of action for its implementation.

Impact and Outcome The main impact of the Project will be to prevent poverty from rising. The Project will improve the food security of the poor and vulnerable people affected by repeated natural disasters and rising food prices. It will contribute to the efforts of the Government so that 5 million poor and vulnerable people have better access to food. It will reduce the poverty levels of low-income groups. The focus of the Project will be on improving access of the poor to food, income, and livelihood support. It will assist in relieving the immediate fiscal pressures caused by a sharp rise in safety net expenditures. It will also assist in sustaining the external balance, aggravated by higher import costs for food grains.

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Project Investment Plan The investment cost of the Project is estimated at $1,293 million.

Financing Plan The Government has already diverted significant resources from its general development priorities to meet the increasing social safety net requirements. In light of adverse fiscal performance, the Government has requested ADB to provide a concessional loan equivalent to Special Drawing Rights 104,247,000 (equivalent to $170 million) from ADB’s Special Funds resources to help finance the Project. The loan will have a 32-year term including a grace period of 8 years, and an interest charge of 1% per annum during the grace period and 1.5% per annum thereafter, and such other terms and conditions set forth in the draft loan agreement. The World Bank is preparing parallel financing of the Project (in an amount preliminarily estimated at $100 million) based on the joint needs assessment. JBIC and the Islamic Development Bank are also considering the possibility of cofinancing the Project with ADB. If all the sources of external funding materialize, the Government will be able to recoup a portion of the safety net expenditures. Following the ongoing National Food Policy Capacity Strengthening Program, implemented by FAO and funded by the European Commission (EC) and USAID, further assistance is under consideration by EC and USAID for about $5 million each for food policy implementation and monitoring, complementary to ADB assistance.

Period of Utilization 31 December 2009

Estimated Project Completion Date

30 June 2009

Executing Agency Finance Division, Ministry of Finance Implementation Arrangements

The Executing Agency will provide funds to the Implementing Agency, the Ministry of Food and Disaster Management (MoFDM). Overall project coordination will be provided by a food security steering committee (FSSC), chaired by the secretary of the Finance Division of the Ministry of Finance. The FSSC will include representatives at joint secretary level from the Economic Relations Division of the Ministry of Finance, Ministry of Agriculture (MOA), MoFDM, Planning Commission, and Directorate of Food and Directorate of Relief and Rehabilitation of MoFDM. The FSSC will be responsible for implementing the policy and governance issues addressed by the Project. To ensure timely implementation of the Project, ADB will delegate responsibility for ADB’s project administration to its Bangladesh Resident Mission, which has extensive experience in administering similar projects. The resident mission will closely monitor compliance with ADB’s requirements under the Project to ensure quality control and accelerated implementation through

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close follow-up and guidance to the relevant ministries and agencies on project implementation matters.

Procurement The Project will provide $170 million to meet the Government’s urgent additional financing requirements for food security. In accordance with ADB’s Disaster and Emergency Assistance Policy, the financing will only be used for expenditures of goods identified to implement the Government’s safety net programs and procured in accordance with ADB’s Procurement Guidelines (2007, as amended from time to time). ADB Management has agreed to provide retroactive financing for a maximum 30% of the total loan amount for eligible expenditures incurred not earlier than 1 April 2008, provided that the expenditures are in accordance with agreed procedures, are certified by the Finance Division, and the certification is acceptable to ADB. ADB will reserve the right to audit the use of the loan proceeds and verify the accuracy of the Government’s certification.

Project Benefits and Beneficiaries

The Project will provide emergency assistance to the Government to expand targeted safety net programs for the poor and vulnerable at a time when there are inadequate budgetary resources for financing these programs. The Project will assist in sustaining domestic and external balances, affected by heightened international prices of food grains and other commodities. The assistance will foster macroeconomic stability by reducing the need for domestic borrowing, thus dampening inflationary pressures and avoiding the crowding out of domestic investment. Fiscal space will be created, making it possible to reallocate resources to other essential public expenditures. The Project will help restore the purchasing power of the poor and vulnerable who are at a greater risk of hunger and malnutrition. Those most vulnerable to food price shocks will be protected from nutritional deprivation, erosion in real income, and asset shedding. The Project will benefit the poor—including men, women, and children—by enhancing their access to food, livelihood support, and employment.

Risks Because of the huge volume of emergency food to be distributed, there are some risks in the areas of storage and distribution, leakages, and lack of financial accountability in safety net programs. Over time, Bangladesh has developed good capacity and long experience in managing public food grain distribution, and has strengthened the safeguards necessary to implement the safety net and public food distribution programs and systems effectively. Recent measures, such as the establishment of a working group with donor participation to monitor the public food programs, will also mitigate these risks. The Project and associated technical assistance (TA) include fiduciary oversight of the components of the funds provided and disbursed for safety net spending. Another risk is the recurrence of natural disasters and related extensive damage, which would strain the country’s

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administrative capacity in distributing food and other essentials and exert fresh pressures on the budget, involving additional import of these items. This risk is addressed by adopting appropriate mitigation and cost-effective adaptation measures against floods and cyclones, including capacity building, which would reduce damage from future disasters.

Technical Assistance TA of $600,000 for Strengthening the Government’s Institutional Capacity for Improving Food Security will be provided to support reform measures and fiduciary oversight supported by the Project, complementing ongoing and planned TA support by EC and USAID for food policy implementation and monitoring. The TA project aims to assist in improving the Government’s capacity for planning and undertaking mid- and long-term interventions to improve food security, including strengthening monitoring for increasing the efficiency of ongoing safety net programs.

I. THE PROPOSAL

1. I submit for your approval the following report and recommendation on a proposed loan to the People’s Republic of Bangladesh for the Emergency Assistance for Food Security Project. The report also describes proposed technical assistance (TA) for Strengthening the Government’s Institutional Capacity for Improving Food Security, and if the Board approves the proposed loan, I, acting under the authority delegated to me by the Board, will approve the TA. The design and monitoring framework is in Appendix 1.

II. RATIONALE: SECTOR PERFORMANCE, PROBLEMS, AND OPPORTUNITIES A. Performance Indicators and Analysis 2. The world is witnessing a drastic rise in food prices. Soaring food prices have led to serious hardship for poor and vulnerable people who spend a substantial part of their incomes on food. Food prices in international and domestic markets have reached all-time highs. Over the past year, the price of rice in the international market has risen by 196% (from $325 per ton in May 2007 to $963 per ton in May 2008).1 Wheat prices in the international market have risen by 72% (from $203 per ton in May 2007 to $349 per ton in May 2008). In Bangladesh, the retail price of coarse rice has risen by 61% to Tk32.1 per kilogram (kg) in April 2008 from Tk19.9/kg in April 2007, while the price of wheat has increased by 56% to Tk30.6/kg from Tk19.6/kg over the same period. Despite harvest of a bumper boro rice crop (estimated at 17 million tons), the retail price of coarse rice further increased to Tk33.4/kg in early July 2008 following upward adjustments in domestic energy and fertilizer prices (Appendix 2). The prices of all other major food commodities have surged in the international and domestic markets. 3. Falling stocks, increased demand, high energy and fertilizer prices, steep depreciation of the dollar, and trade restrictions imposed by some countries have amplified the price surge in food grains. In the face of a shortfall in production, attempts to build stocks have heightened price pressures. Although some of the cyclical factors, such as weather-related impacts, are likely to fade, strong structural factors are pushing up food prices and these have some mutually reinforcing effects. Structural factors are much more prominent in explaining the rise in food grain prices. Over the past decades, growth in the production of food grains has failed to keep pace with growth in consumption, contributing to dwindling global food grain stocks. Growth in yields has slowed significantly. The surge in energy prices, driven by structural factors—with the resultant rise in prices of fertilizers, irrigation pumps, and transportation costs—has fed into the production cost, raising food grain prices further. Rapid urbanization and competing demand for land for commercial rather than agriculture purposes, and growing scarcity of fresh water for agriculture, have adversely affected production growth. The diversion of cereal use from food to produce biofuel has also contributed to the food crisis. Rising income in emerging countries has steadily increased demand for food grain consumption. With higher income, the demand for meat and dairy products has increased. Production of meat and dairy products requires large amounts of grain for livestock feed. In many countries, policy inadequacies, weak institutions, and lack of needed investment have inhibited the growth in agriculture production. 4. Food grain prices are expected to moderate somewhat eventually because of the increased supply response of farmers. However, the structural factors are likely to dominate cyclical factors—causing high prices to persist for the foreseeable future. Although the international prices of many agricultural commodities have started to fall, they are unlikely to fall

1 Food and Agriculture Organization (FAO). 2008. FAO database. Available: www.fao.org.

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significantly because of several reasons, including the higher cost of inputs.2 A number of demand factors, such as the need to replenish stocks and expected increases in utilization, are keeping prices high despite a favorable global production outlook. The most influential development in pushing up international prices of basic foods has been the low level of exportable supplies, resulting from utilization outstripping production for several crops in a number of major exporting countries. Rising utilization levels would necessitate more than one good season to bring about a needed replenishment of stocks and hence a reduction in price volatility. 5. The surge in prices of food grains especially that of rice, has become a matter of serious concern for net food grain importing countries, such as, Bangladesh. The erosion of the purchasing power of the poor and vulnerable places them at greater risk of hunger and malnutrition. Soaring food prices are undermining the gains in poverty reduction and could push large numbers of people back below the poverty line. The Government needs to strengthen safety net programs for the most vulnerable population to cope with the drastic rise in their food bills. Those most vulnerable to food price shocks need to be protected from nutritional deprivation, erosion in their real purchasing power, and asset shedding. Failure to protect the poor from income erosion could seriously undermine recent gains in poverty reduction and the political and macroeconomic stability of the country before the general elections scheduled in December 2008. 6. The overall policy and institutional environment is sound. The Government has taken bold actions to reduce subsidies by substantially raising fertilizer and energy prices, with freed resources exclusively targeting the poor and vulnerable through strengthened safety net programs. The Government has a good record of managing public food distribution through well-targeted and well-managed programs, so there is a solid basis for supporting the envisaged safety net programs. The food for work program also supports the construction and maintenance of essential infrastructure—rural roads, river embankments, irrigation, and other public facilities. B. Analysis of Key Problems and Opportunities

1. Food Price Shocks 7. In Bangladesh, a net food importing country, domestic food grain production, public and private stocks, and international trade determine food grain availability. Bangladesh has been seriously affected by food price shocks, driven by soaring international prices and domestic production shortfall following successive natural disasters. Surging food prices have hit the poor and food-insecure households the hardest. The net food buyers3 in rural Bangladesh and fixed income groups in urban areas (including urban slum dwellers)—which represent the majority of poor households—are adversely affected. Adjustments in the rural economy, which can create new income opportunities, would take time to reach the poor. The nutrition of the poor is also at risk when they are not insulated from price rises. Higher food prices lead poor people to limit their food consumption and shift to less balanced diets, causing widespread nutritional deprivation. 8. Bangladesh is still a least developed country with per capita gross domestic product (GDP) of $554 in FY2008. However, over the past three decades, it has achieved near self-

2 FAO. 2008. Food Outlook. Available: www.fao.org. 3 Rural households who buy more food than they sell.

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sufficiency in rice production from a chronic food deficit. The significant rise in rice production is due to policy improvement, which induced significant increases in irrigated areas. Since FY2000, annual food grain production in the country rose by 2.9% or 0.7 million tons. Per capita food grain production has grown at the comfortable rate of 1.3% per year and availability has risen by 2% annually. Food security remains elusive, though, particularly in years when production is affected by natural disasters. The devastating floods during July–September 2007 and a cyclone during 15–16 November 2007, affecting 25 million people in 51 districts, caused severe damage to agriculture, livelihoods, and infrastructure. The combined losses of the floods and cyclone are estimated at $2.8 billion or 3.6% of GDP. The severe flooding and cyclone seriously affected the aman rice crop; production is estimated at 9.7 million tons in FY2008, which is 1.2 million tons lower than the preceding year. Although larger imports in FY2008 helped offset the food grain production shortfall, prices in the domestic market soared because of rising international prices and seasonality reinforced by the floods and cyclone. The market surplus of available food grains4 is estimated at 3.9 million tons in FY2008, higher than in recent years (Appendix 2). However, availability of food in aggregate terms does not guarantee food security for all at the current level of prices—especially not for the poor and vulnerable. 9. The Government discontinued administrative actions, such as anti-hoarding measures that failed to arrest upward trends in prices. The domestic cost of rice production has increased, even with subsidized agriculture inputs such as diesel and urea fertilizer. Responding to market signals, driven by soaring international and domestic prices, the Government fixed the boro rice procurement price at Tk28/kg, 56% higher than the last boro season. Boro procurement runs from 16 April to 31 August 2008. Even after a bumper boro crop, rice prices did not moderate, implying that high food prices are likely to persist in the foreseeable future. Despite a bumper boro crop, a supply shortage is possible if the next aman or boro crops are affected by natural disasters or other factors. Considering such risks, the Government is planning to raise the stocks under the public food distribution system (PFDS) to 1 million tons by the end of June 2009 (from 0.6 million tons at the end of June 2008) through domestic procurement and imports for distribution to priced and non-priced safety net programs for the poor and vulnerable. The boro procurement target of the current season is about 1.2 million tons (in terms of rice equivalent), which is about 50% higher than average boro procurement in the last 5 years and 7% of expected boro rice production of the current fiscal year. The budgetary implication for this procurement is $490 million. For the operation of the PFDS, public commercial imports in FY2009 are expected to rise to 1.3 million tons or $620 million from an estimated 0.7 million tons or $290 million in FY2008 (Appendix 3). The readily available and useable storage capacity in the public food grain distribution system is 1.2 million tons, unable to accommodate peak time storage demands. The Government is planning to expand the storage capacity in the PFDS with a focus on public-private partnership in building and maintaining food grain storage.

2. Poverty and Macroeconomic Impacts

10. Repeated natural disasters and soaring food prices seriously affected Bangladesh, with significant poverty and macroeconomic implications. Impacts of the rise of food prices on the household incomes and key macroeconomic variables are assessed using a computable

4 Market food grains availability in Bangladesh may be defined as follows: FA=NP+OT+PI-DP

where FA = market food grains availability; NP = net production (0.9 × domestic gross production); OT = government off-take; PI = private imports; and DP = government domestic procurement. This definition includes stocks held by private traders that may not reflect immediate availability for consumption. Data on private food grain stocks are not available.

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general equilibrium model. 5 The model is calibrated to a social accounting matrix for Bangladesh for 2005. Two simulations are carried out: one for a 20% rise in the price of food items, and the other for a 60% rise. A rise in food price transmits to the domestic economy by affecting general prices, real wages, aggregate demand, supply, and real income. The results show that the inflation is highly sensitive to a rise in food prices; and a rise in food prices causes a decline in real household income, household welfare, and real GDP (Table 1).

Table 1: Impact of Food Price Rise

Item Simulation of 60% Rise Simulation of 20% Rise General Price Level 2.16 percentage points 0.59 percentage points Real Household Income –1.612 –0.501 Welfare (equivalent variation) –0.905 –0.314 Real GDP –0.787 percentage points –0.231 percentage points

GDP = gross domestic product. Source: South Asian Network on Economic Modeling, Dhaka Secretariat. 11. Poverty Impact. The surge in prices of food, mainly rice, has seriously eroded the purchasing capacity of people living below the poverty line as well as government employees, industrial workers, and others with fixed incomes. Rice contributes to 71% of the total calorie intake/person/day in rural Bangladesh and 60% in urban areas.6 Food accounts for 69% of total expenditures for the poorest 30%. Both urban and rural households in Bangladesh face welfare losses in the short term, even with a 10% increase in the price of rice.7 The losses are higher in the lower quintiles. Households in the poorest rural quintile earn on average 63% of their income from on- and off-farm wages. The majority of the rural households are net food buyers; only 12% are net food sellers. These characteristics show that the poorest households are highly vulnerable to food price increases and experience large welfare losses. Marginal farmers and sharecroppers did not get their due share of the price rise because many of them sold their crops to the landowners at a lower price before the harvest. 12. High food inflation has two important implications for the poor. First, it increases the price of food relative to that of non-food items. Since a higher proportion of the consumption basket of the poor in Bangladesh is allocated to food items, the poor have serious difficulty in allocating funds in response to food price shocks. Therefore, the poor bear almost the full brunt of food inflation. Second, since food inflation reduces the real income of the poor, there is less money left after food purchases to consume other necessary goods and services such as education, health, water, sanitation, and energy. In other words, the income effect hurts the poor more. 13. In Bangladesh, where about 40% of population is under the upper poverty line and 25% is below the lower poverty line,8 a 50% rise in rice prices would reduce the intake of the hard-core poor significantly—close to a starvation diet. According to the preliminary findings of a recent study,9 considering the weighted inflationary impact of price of rice, an additional 8.5% of 5 Developed and maintained by the South Asian Network on Economic Modeling, Dhaka Secretariat. 6 Bangladesh Bureau of Statistics. 2005. Household Income and Expenditure Survey 2005. Dhaka. 7 FAO. 2008. Growing Demand on Agriculture and Rising Prices of Commodities. United Nations. Available:

www.fao.org. 8 The poverty lines represent per capita consumption expenditure at which the members of a household can be

expected to meet their basic needs (food and nonfood consumption). A household with per capita consumption expenditure falling below a given poverty line is considered poor.

9 Center for Policy Dialogue. 2008. Bangladesh Economy in FY2008, An Interim Review of Macroeconomic Performance. Dhaka. The survey takes the household income and expenditure survey 2005 data as a reference point. The World Bank is currently preparing a poverty assessment for Bangladesh which will include comprehensive analysis of impact of recent rise in food prices on poverty.

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households have fallen below the poverty line in 2008. This translates into an additional 2.5 million households or 12 million people falling below the poverty line. The study also reveals that the heightened inflation, particularly soaring food prices, seriously affected the poor and vulnerable and fixed income earners. People below the poverty line experienced income erosion of 36.7% from January 2007 to March 2008. 14. Macroeconomic Impact. The immediate effect of rising food prices is on inflation, fiscal outlays, and external balance. The surge in food prices (58.8% weight in the consumer price index) is pushing inflation higher. Consumer price index inflation rose to 10% on an annual basis in March 2008, up from 7% in March 2007. During this period, food inflation rose to 11.8% from 8%. For FY2008, the fiscal implications of the Government’s response to food price shocks and natural disasters are sizeable (e.g., food safety net spending of $0.69 billion or 0.9% of GDP) and subsidies on fertilizer ($0.50 billion or 0.6% of GDP) and energy ($0.84 billion or 1.1% of GDP). The fiscal deficit in FY2008 is estimated at 4.7% of GDP (foreign financing 2.4% of GDP), from 3.2% of GDP (foreign financing 1.2% of GDP) in the preceding year. The fiscal pressures will be heightened in FY2009 because of an expanded food safety net program for the poor (1.5% of GDP) and a continued uptrend in international prices of fuel and fertilizers (Appendix 4). 15. Considering the fiscal pressures of low administered prices of energy and fertilizers, the Government increased the price of domestic compressed natural gas by 98% at the end of April 2008. It also increased the price of urea by 108% effective 10 June 2008, and raised fuel prices by 34%–50% effective 1 July 2008. Following these price adjustments, freed resources will exclusively target the poor and vulnerable through a strengthened safety net program. Although these adjustments in prices of energy and fertilizers will substantially reduce subsidies, the fiscal deficit is projected to rise to 4.9% of GDP in FY2009 as international prices of energy and fertilizer continue to rise. To finance the rising fiscal deficit, the Government is mobilizing additional external assistance to avoid excessive domestic bank borrowing, which is expensive and inflationary and crowds out the private sector. Higher food prices significantly contributed to a surge in the trade deficit (estimated at 6.8% of GDP in FY2008). However, the balance of payment impact of higher food prices has been partly offset by higher aid flows and a surge in overseas workers’ remittances.

3. Government’s Strategy and Response to Address Food Security 16. In 2006, the Government approved the national food policy,10 which details the key elements of national food security initiatives through (i) adequate and stable supply of food; (ii) people’s increased purchasing power and access to food; and (iii) adequate nutrition for all, including women and children. The national food policy emphasizes both short-term solutions to cope with unexpected domestic and external shocks following natural disasters, and medium- and longer-term measures to ensure food security through increased agriculture productivity. While short-term responses are urgently needed to meet present food security needs in the aftermath of the natural disasters in late 2007 and in the face of rising international prices, over the medium to long term, measures are needed to ensure continued availability of food. The immediate priority is to ensure food security for the poor and vulnerable. In addition, farmers’ production incentives will be sustained in the immediate term. The coverage of safety net programs will be expanded to those whose food security status has been affected by soaring prices. The Government aims to improve targeting, make delivery mechanisms more cost-

10 Ministry of Food and Disaster Management. 2006. National Food Policy. Dhaka (14 August).

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effective and transparent, and reduce leakage and administrative hurdles in the food security system. It also plans to strengthen food stock management by involving the private sector. 17. In the medium term, food security will be enhanced primarily through technology-driven productivity improvements rather than by the provision of government subsidies. The focus will be on technological improvement, boosting investment in agriculture, adoption of higher yielding crop varieties, and strengthening the agro-input distribution system (quality seeds, fertilizers, water and irrigation costs, credit, etc.). With support of the development partners, the Government recently developed a plan of action for implementing the national food policy with 26 areas of intervention and 314 targeted actions (Appendix 5). The plan is expected to be approved within 2008 and implementation commenced. The Government is aware of the large investment needs in agriculture, particularly the food grain subsector. It considers that its cooperation with the Asian Development Bank (ADB) in the agriculture sector should prioritize food crop production, seed development and agricultural research, extension, infrastructure development, and support services.

18. Following successive natural disasters in the second half of 2007 and in the face of rising international prices, the Government responded to soaring food grain prices in several ways, including cutting the import duty on food items, raising food grain imports, launching an extensive flood and cyclone recovery program, focusing on higher boro rice production, and widening social safety net programs for the poor and vulnerable. It banned the export of nonaromatic varieties of rice for 6 months and negotiated to import a substantial quantity of rice (500,000 tons) from India. Bangladesh Bank is following a more flexible approach in exchange rate management to contain the pass-through of rising international prices to domestic prices. It is encouraging banks to provide credit facilities on softer terms to new importers, easing letter of credit margins for food items, and extending the time limit for importers. The Government has taken bold actions to reduce subsidies by substantially raising fertilizer and energy prices; resources freed from these actions exclusively fund additional safety net programs. However, it is not possible for the Government to address such a severe crisis from its own resources, so it has requested the development partners to fund the substantial financing gap. 19. In response to the Government’s request, ADB, the Japan Bank for International Cooperation (JBIC) and World Bank—supported by the Food and Agriculture Organization (FAO), International Monetary Fund (IMF), United States Agency for International Development (USAID) and World Food Programme (WFP)—conducted the needs assessment to determine the country’s immediate safety net requirements, evaluate its program, and agree on areas of assistance to be provided by the development partners with the concurrence of the Government. ADB’s emergency assistance will focus on supporting the Government’s food safety net programs.

4. Needs Assessment

20. The needs assessment mission conducted jointly with the JBIC and World Bank with the support of FAO, IMF, USAID, and WFP focused on immediate assistance measures needed by the Government in the face of food price shocks. The findings of the needs assessment mission are as follows:

(i) Following the national food policy, the policy measures available in the short run include expanding safety net programs and social protection for the vulnerable and poor affected by unexpected domestic and external shocks, such as in the aftermath of natural disasters and rising food prices. Several priced and non-

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priced safety net programs under the PFDS can support the purchasing power of the poor without distorting incentives for domestic food production (Appendix 6).

(ii) Safety net programs related to food security include open market sales, vulnerable group development, vulnerable group feeding, test relief (food), food assistance, and food for work. These safety net programs are targeted on the basis of low income groups and poverty concentration areas. The Government is planning to strengthen these safety net programs further, with an emphasis on targeting efficiency in addition to increased spending and expanded coverage, to protect the poor and vulnerable from the food price shocks. The channel-wise food distribution under the expanded safety net program compared to earlier years is given in Appendix 7.

(iii) Learning from the experience of neighboring countries (e.g., India), the Government has introduced a new 100-day employment scheme for 8 million person-months or 2 million beneficiaries to address joblessness in poverty-stricken rural areas. The sustainability and effectiveness of the scheme will be reviewed by independent research agencies.

(iv) The Government will need to increase safety net program spending for food security in FY2009 to $1.29 billion or 1.45% of GDP from $0.69 billion or 0.88% of GDP in FY2008 (Table 2). Expanded safety net programs are needed to provide income, food, and livelihood support to the poor and vulnerable for 58.41 million person-months in FY2009 from 43.70 million person-months in FY2008, increasing coverage by 34%.

Table 2: Social Safety Net for Food Security

Coverage (million person-

months)

Amount ($ million)

FY2008 FY2009 FY2008 FY2009

Safety Net Program Estimate Budget Estimate

% of GDP Budget

% of GDP

Open Market Sales 6.84 8.50 269.53 0.35 389.93 0.44

Vulnerable Group Development 8.83 8.83 105.10 0.13 121.96 0.14

Vulnerable Group Feeding 20.93 22.50 124.64 0.16 103.22 0.12

Test Relief (Food) 1.43 1.91 59.91 0.08 92.05 0.10

Gratuitous Relief (Food) 3.20 3.20 25.36 0.03 29.36 0.03

Food Assistance in Chittagong Hill Tracts

0.71 0.71 29.74 0.04 34.68 0.04

Food for Work Program 1.76 4.76 73.32 0.09 229.98 0.26

100-Day Employment Scheme 0.00 8.00 0.00 0.00 291.55 0.33

Total 43.70 58.41 687.60 0.88 1,292.73 1.45 FY = fiscal year, GDP = gross domestic product. Source: Asian Development Bank estimates based on Finance Division data.

21. The safety net programs in Bangladesh have been evaluated by several key development partners including International Food Policy Research Institute, WFP, and World Bank in addition to regular monitoring and evaluation by relevant government agencies. Since the early 1970s, safety net programs have had a tremendous impact on the improvement in the

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overall food security and nutrition status of the poorest people in Bangladesh. These programs have helped the poor and vulnerable to improve their livelihoods; health and nutrition status, particularly for women and children; and income generation. Women have become more empowered and their ability to make decisions, mobilize resources, and exercise choices over various aspects of their lives has improved. Income transfers from the safety net programs have also played an important role in protecting and expanding the asset bases of the poor and vulnerable. The programs have made major contributions toward reduction of the national poverty level, by protecting against a worsening hunger situation and avoiding a major joblessness situation. They have also played a key role in developing and improving the country’s infrastructure, including rural roads, flood protection, and irrigation facilities (especially through the construction and maintenance of embankments and channels by low-income communities). Based on recent evaluations, these programs are particularly beneficial for the poor and vulnerable at times of natural disasters and food insecurity. Among the different forms of transfer, the biggest improvement is in food security of the extreme poor. Considering Bangladesh’s level of income and size of population, these programs are limited in scale and coverage. Their efficiency, in terms of targeting and coverage, needs to be improved; and their administrative capacity needs to be strengthened to enhance their quality and effectiveness (Appendix 8).

5. ADB's Assistance to Address Food Security 22. ADB supported policy reforms and innovative interventions for increasing food grain production, agriculture inputs liberalization, agribusiness, diversifying crops, and developing the livestock and fisheries sectors. ADB has also assisted in conserving the environment, creating and developing irrigation systems, fostering small-scale water resources, building flood protection, and ensuring greater access to markets for villagers. This support has made a major contribution to raise agriculture productivity over recent decades.11 ADB’s country partnership strategy for Bangladesh for 2006–2010 12 —jointly developed with the United Kingdom’s Department for International Development (DFID), Government of Japan, and World Bank—emphasizes (i) intensification, diversification, and value addition of crops to boost agricultural productivity, improve food security, and foster rural nonfarm enterprise development; (ii) strengthened farm-to-market linkages; and (iii) sustained growth of agriculture and agribusiness to generate productive on- and off-farm employment to raise rural income. 23. Consistent with the country partnership strategy and complementing support by other development partners, ADB assistance to Bangladesh in the agriculture sector over the medium to long term will continue to focus on expanding access to irrigation and associated flood protection through increased support in both large- and small-scale water resources management; and on improving rural infrastructure and raising agriculture productivity. In addition to its ongoing support for intensification, diversification, and production of high value crops, ADB will intensify its assistance in capacity development, research, extension, and field level support services aimed at raising food production. To this end, ADB will refocus the Crop Diversification Project II planned for 2010 toward production of staple food crops. ADB will also enhance its support in developing and adapting productivity enhancing technologies and strengthening farm-to-market linkages—complementing ongoing and planned assistance in the agriculture sector (Appendix 9).

11 ADB. 2003. Country Assistance Program Evaluation for Bangladesh. Manila. 12 ADB. 2005. Country Strategy and Program (2006–2010): Bangladesh. Manila.

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24. As a regional multilateral development bank, ADB responded quickly to address the food crisis in Asia and Pacific countries, including Bangladesh, by allocating $500 million in urgent budgetary support to the hardest hit countries for safety nets to protect the poor and vulnerable in the face of rising food prices. It formed a task force, which prepared a comprehensive report to address the crisis in its member countries. In response to the Government’s request, a needs assessment mission was fielded from 27 May to 15 June 2008 to develop the emergency assistance needed for food security in Bangladesh, jointly with JBIC and World Bank with the support of FAO, IMF, USAID, and WFP. The mission held discussions with the Government on key issues relating to safety net programs, subsidies, and macroeconomic implications over the short, medium, and longer term. 25. Subsidies for fuel and fertilizer are increasingly becoming unsustainable because of rising international prices. The recent upward revisions in energy and fertilizer prices are timely and will contribute to containing the fiscal deficit in FY2009. Under the Project, the Government will further review options, with the assistance of ADB and other development partners, to address the sustainability of various subsidies affecting the agriculture sector. The Government envisions a phased move to more sustainable pricing, but an immediate increase to world price levels would be too disruptive. In close coordination with other development partners, ADB will continue to support the various policy reforms to reduce subsidies on energy and agriculture inputs to sustainable levels under its ongoing and planned projects/programs for Bangladesh.

6. Response by other Development Partners 26. Food security assistance from multilateral agencies mainly focuses on budgetary support for implementing government safety net programs. Support from bilateral and UN agencies have focused on food procurement and distribution through a well-coordinated approach. In FY2008, funding has been secured from development partners for relief and reconstruction following natural disasters, including transitional support credit from the World Bank and balance of payments support from IMF. Responding to the food crisis, the World Bank is preparing budgetary support for the Government based on the joint needs assessment with ADB and JBIC parallel to ADB’s emergency assistance loan. JBIC and the Islamic Development Bank are considering cofinancing the Project with ADB. Following the ongoing National Food Policy Capacity Strengthening Program, implemented by FAO and funded by EC and USAID, EC and USAID are considering further assistance of about $5 million each for food policy implementation and monitoring, complementary to ADB assistance. DFID is initiating a comprehensive study on the food crisis. EC is also working on a global response strategy comprising short-, medium-, and long-term measures at the country levels, which will cover Bangladesh. In the meantime, USAID will continue funding the Jiban O Jibika (life and livelihood) and Shouhardo (friendship) programs aimed at improving the use of technology for increasing crop productivity. USAID is also contributing $40 million of food aid to Bangladesh—$30 million will be distributed over 3 years for the school feeding program and $10 million is emergency food aid; this follows $20 million in emergency food assistance after the 2007 cyclone. In addition to its earlier contribution of A$9.5 million for communities affected by the 2007 cyclone, the Government of Australia will provide A$1.2 million in humanitarian assistance to meet the essential needs, including for food, of the vulnerable communities in Bangladesh. Danish International Development Agency (DANIDA) is also stepping up support for integrated agricultural development, for enhancing food production.

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7. Portfolio Restructuring 27. In formulating the proposed emergency food assistance, the possibility of loan portfolio restructuring and potential use of Asian Development Fund (ADF) loan savings under ongoing projects were carefully assessed in line with ADB’s policy on disaster and emergency assistance. 13 The portfolio assessment was made as part of the comprehensive country portfolio review in 2008 14 and regular project reviews in close consultation with relevant government agencies. Over the past 5 years, ADB has emphasized regular portfolio review to identify and cancel ADF loan savings, by examining the physical and financial progress of ongoing projects and adjusting their scope and design. During 2007, a total of $157 million in ADF loan savings were cancelled.15 As a result, the scope for identifying additional loan savings by restructuring the ongoing portfolio became limited. However, after careful review and detailed consultations with relevant executing agencies (EAs), further loan savings of $46 million were identified during the 2008 country portfolio review from eight loans for cancellation at the Government’s request.

8. Governance and Corruption

28. Despite efforts by successive governments, weak governance was a key challenge in Bangladesh until the current caretaker Government was installed in January 2007. The Government has accomplished some critical governance reforms during the last 18 months, which include (i) reconstitution and operationalization of the Anti-Corruption Commission, (ii) ratification of the United Nations Convention against Corruption, (iii) submission of asset declarations by members of the civil service, (iv) making the judiciary independent by separating it from the executive, and (v) reconstitution of the Public Service Commission and revision of civil service recruitment rules to ensure merit and transparency in the civil service selection process. The Government is expected to enact a law soon on the right to information to enhance transparency, accountability, and public sector responsiveness and efficiency. ADB has been supporting the Government in implementing most of these critical governance reforms under the Bangladesh Good Governance Program. 16 The Government is also preparing a comprehensive National Integrity Strategy with ADB assistance to address corruption holistically. 17 These governance reforms are expected to reinforce the Government’s efforts to curb public sector corruption effectively. 29. Public procurement, generally associated with a high level of corruption, is undergoing a major reform program supported by ADB, World Bank, and other development partners following new public procurement regulations that became effective in October 2003. To enhance transparency, the Government made the Public Procurement Act effective from 31 January 2008. At the sector level, the Government has appointed a focal point in each line ministry, including the MoFDM, to address public complaints and establish an effective grievance handling mechanism in all public sector agencies. MoFDM is among the 16 Medium 13 ADB. 2004. Disaster and Emergency Assistance Policy. Manila. 14 Conducted from 23 April to 11 May 2008, jointly with other development partners, including DFID; governments

of Japan, Denmark, and the Netherlands; and World Bank. 15 Out of that, ADB Management approved the reallocation of $50 million to finance emergency disaster damage

rehabilitation under: ADB. 2008. Report and Recommendation of the President to the Board of Directors on a Proposed Loan and Technical Assistance Grant to the People’s Republic of Bangladesh for the Emergency Disaster Damage Rehabilitation (Sector) Project. Manila.

16 ADB. 2007. Report and Recommendation of the President to the Board of Directors on a Proposed Loan and Technical Assistance Grant to the People’s Republic of Bangladesh for the Good Governance Program. Manila.

17 ADB. 2005. Technical Assistance to the People’s Republic of Bangladesh for Preparing the Good Governance Project. Manila.

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Term Budgetary Framework ministries chosen for further financial management reforms under the Financial Management Reforms Program funded by DFID and the Government of the Netherlands. An integrated budgeting and accounting system has been developed to facilitate the centralization of all accounting data from districts and ministries. Strengthening of financial management and auditing has also been aided by training provided under ADB TA to the Foreign Aided Projects Audit Directorate (FAPAD) of the Office of the Comptroller and Auditor General of Bangladesh.18 30. MoFDM has a well-functioning and reliable monitoring system to ensure transparency in the procurement and distribution of food grains (the PFDS). The food planning and monitoring unit under MoFDM provides a daily countrywide report on the PFDS by collecting data from food silos, ports, and other food warehouses located at the district and subdistrict level. The Directorate of Food also has an internal audit unit, reporting directly to its director general, to conduct concurrent and post-audit of all transactions in the directorate. The proposed Project and attached TA incorporate several measures to help further enhance efficiency and transparency in food procurement and distribution—including (i) provisions for strict financial management with strengthened government accounting, auditing, and special audit as part of FAPAD auditing, supported by the TA consultants; (ii) strengthened capacity of the internal audit unit; (iii) establishing a computerized network with the silos, ports, and district level food warehouses; (iv) strengthened government monitoring and strong project supervision of the safety net programs; and (v) independent spot checks by ADB staff and the TA consultants.

III. THE PROPOSED PROJECT

A. Impact and Outcome 31. The main impact of the Project will be to prevent poverty from rising. The Project will improve the food security of poor and vulnerable people affected by repeated natural disasters and rising food prices. It will contribute to the Government’s efforts so that 5 million poor and vulnerable people have better access to food. It will reduce the poverty levels of low-income groups. The focus of the Project will be on improving access of the poor to food, income, and livelihood support. It will assist in relieving the immediate fiscal pressures because of a sharp rise in safety net expenditures. It will also assist in sustaining the external balance, aggravated by higher import costs for food grains. B. Outputs 32. The Project will provide short-term transitional support to help the Government meet unexpected high expenditures for safety net programs for the poor and vulnerable affected by soaring food prices. It will provide $170 million to finance the programs. In accordance with ADB’s Disaster and Emergency Assistance Policy, the financing will only be used for essential imports identified to support the Government’s safety net programs for food security (Appendix 10). Following are the major outputs of the Project:

(i) Output 1: Strengthened open market sales of food grains with wider coverage to ensure food security for 1.1 million person-months of targeted poor and vulnerable people. The hardship of poor people affected by higher food prices

18 ADB. 1999. Technical Assistance to the People’s Republic of Bangladesh for Strengthening Project Portfolio

Performance. Manila.

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will be mitigated with expanded coverage and improved efficiency under open market sales.

(ii) Output 2: Enhanced food entitlements for 5.4 million person-months for the poor and vulnerable to survive short-term food deficits. The poor and vulnerable will have better access to food through various safety net programs, such as the vulnerable group development program, vulnerable group feeding program, test relief (food), gratuitous relief, food assistance for Chittagong Hill Tracts tribal people, and the food for work program. Employment opportunities will be created for the poor and vulnerable, disadvantaged groups, and functionally landless and low-income earners through food grain transfer, which will help improve rural infrastructure development through the participation of low-income communities.

(iii) Output 3: Enhanced purchasing power of the poor and vulnerable by generating rural employment for 1 million person-months. Employment guarantee schemes will create employment opportunities for the poor and vulnerable in poverty-stricken areas when unemployment is at its peak.

(iv) Output 4: A more effective and efficient food security monitoring system. This component will be assisted by the attached TA to support reform measures and fiduciary oversight to strengthen monitoring for increasing the efficiency of ongoing safety net programs, complementing assistance from other development partners.

C. Special Features 33. Consultation, Coordination, and Partnerships. The Project was formulated and prepared in close consultation with the Government and Bangladesh’s development partners. The project design incorporates feedback from beneficiaries, including vulnerable groups, during the needs assessment. The Project is based on the joint needs assessment of the Government, ADB, JBIC, and World Bank with the support of other development partners including FAO, IMF, USAID and WFP. Food security assessments by Bangladesh Institute of Development Studies were also considered in formulating the design of the Project. 34. Loan Terms. While the Project is being processed as an emergency assistance loan under ADB’s Disaster and Emergency Assistance Policy, regular ADF project lending terms are being proposed in consultation with the Government. Regular ADF lending term already provides an extra fiscal space. The Government’s urgency is to mobilize adequate cash flow for providing transitional safety nets to the poor and vulnerable. Without the proposed loan, the Government would be forced to seek additional funding from the banking system at a high rate of interest for a shorter repayment period. This would adversely affect the Government’s fiscal balance as well as private sector operations. It would crowd out the private sector from available financing sources, and could cause an extended impact throughout the community. The proposed loan will provide the necessary cash flow to provide urgent, transitional support to the safety net programs for the poor and vulnerable. In these circumstances, the ADF lending terms are considered appropriate to accommodate this requirement.

35. Flexible Approach and Procurement. ADB’s Procurement Guidelines (2007, as amended from time to time) provide special exemptions for emergency assistance that are adopted for this Project.19 Previously, during natural disasters, exporting ADB member countries have sold food supplies to Bangladesh on terms and conditions lower than normal world trade

19 ADB. 2007. Procurement Guidelines. Section 3.18. Procurement under Disaster and Emergency Assistance.

Manila. Available: www.adb.org/documents/guidelines/procurement/Guidelines-Procurement.pdf.

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prices. Therefore, under ADB’s Procurement Guidelines, wheat and rice imports may be procured in accordance with the Government’s standard public procedures for emergency procurement and normal private sector commercial practices acceptable to ADB, with due consideration to economy and efficiency. 36. Quick Disbursing. ADB’s Disaster and Emergency Assistance Policy expressly contemplates the inclusion of quick-disbursing components in emergency assistance loans to finance imports considered necessary. The drawdown for the retroactive financing and the one advance to the imprest account will be quick-disbursing as provided under the policy. D. Project Investment Plan 37. The total cost of the government food safety net program is estimated at $1,293 million. E. Financing Plan

38. The Government has already diverted significant resources from its general development priorities to meet public food requirements. In light of the adverse fiscal performance (para.15), the Government has requested ADB to provide a loan of Special Drawing Rights 104,247,000 (equivalent to $170 million) from ADB’s Special Funds resources to help finance the Project. The loan will carry an interest charge of 1.0% per annum during the grace period and 1.5% per annum thereafter; a term of 32 years, including a grace period of 8 years; and other terms as those set out in the Loan Agreement. The Government will bear the foreign exchange risk. 39. The Government has requested financing from other development partners. If all the sources of external funding materialize, the Government will be able to recoup a portion of the safety net program expenditures. 40. Cofinancing Opportunities. An underlying objective of ADB’s Disaster and Emergency Assistance Policy is to coordinate with development partners, minimize duplication, encourage cofinancing, and have a catalytic effect on the provision of additional resources. Several of these partners may be willing to complement ADB’s funds for the Project through cofinancing and/or parallel financing. ADB has typically sought the approval of ADB’s Board of Directors for the administration of loan or grant funds from co-financiers only when cofinancing commitments are in place. ADB has received indications from some development partners of their interest in providing loans and grants to finance the Project. JBIC and the Islamic Development Bank are considering cofinancing the Project with ADB. The World Bank is preparing parallel financing of the Project (in an amount preliminarily estimated at $100 million). As it is envisaged that cofinancing in the form of loans and/or grants will be provided from donors, which ADB will be requested to administer, the scope of the overall project financing requirements reflects this likely additional funding. In the event such financing does not materialize, the Government will fill the financing gap. Given the need for expediency and efficiency in ADB’s response to the food crisis, ADB Management requests Board approval of the administration of such cofinanced funds obtained from development partners subsequent to the date of Board approval. Management will confirm and approve such cofinanced funds, and report to the Board in accordance with the standard reporting procedures. Any proposed cofinancing that would materially affect the objectives, purpose, or scope of the Project will be processed as a major change of scope and circulated to the Board in accordance with ADB’s Project Administration Instructions 5.04 and the usual practice.

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F. Implementation Arrangements

1. Project Management 41. The Finance Division of the Ministry of Finance will be the EA and MoFDM will be the Implementing Agency. The loan will flow to the budget of the Government, which will contribute funds to MoFDM’s account through the budget allocation process. MoFDM will arrange the procurement of eligible imports. All transactions will be conducted through bank accounts, with no cash changing hands. Overall project coordination will be provided by a food security steering committee (FSSC), chaired by the secretary of the Finance Division, Ministry of Finance. The FSSC will include representatives at joint secretary level from the Economic Relations Division of the Ministry of Finance, Ministry of Agriculture, MoFDM, Planning Commission, and Directorate of Food and Directorate of Relief and Rehabilitation of MoFDM. The FSSC will be responsible for addressing the policy and governance issues addressed by the Project. 42. To ensure timely implementation, ADB will delegate the responsibility for ADB’s project administration to the Bangladesh Resident Mission, which has extensive experience in administering similar projects, and will closely monitor compliance with ADB’s requirements under the Project to ensure quality control and accelerated implementation through close follow-up and guidance to the relevant ministries and agencies on project implementation matters.

2. Implementation Period

43. As the Project is for emergency assistance, project implementation will be substantially completed by 30 June 2009.

3. Procurement

44. Essential imports financed from the proceeds of the ADB loan will be procured in accordance with ADB’s Procurement Guidelines. Management has agreed to provide retroactive financing for a maximum 30% of the total loan amount for eligible imports incurred not earlier than 1 April 2008, provided that the expenditures are in accordance with agreed procedures, are certified by the Finance Division, and the certification is acceptable to ADB. Retroactive financing will be approved under the following conditions: (i) in accordance with agreed procedures, (ii) verified by ADB, (iii) certified by the Finance Division, and (iv) the certification is acceptable to ADB. ADB advised the Government that provision of retroactive financing does not commit ADB to finance any part of the Project. For the balance of the loan funds, procurement details are outlined in para. 35. The procurement plan is in Appendix 11.

4. Consulting Services

45. No consulting services will be provided under the emergency assistance loan. Consulting services support for implementation will be provided under the attached TA project.

5. Project Monitoring and Anticorruption Measures

46. Strong Oversight Mechanisms to Manage Fiduciary Risks. Emergency assistance must be supported by sound financial management and operational procedures, as well as monitoring and evaluation mechanisms. Strengthened fiduciary risk mitigation measures—such as quality government audit as well as performance audit, and independent monitoring by the

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Implementation Monitoring and Evaluation Division (IMED) under the Ministry of Planning and external audit by FAPAD—are widely adopted under all ADB-assisted projects. Considering the Government’s expanded safety net program, joint fiduciary oversight arrangements will be established with the participation of major development partners including ADB, JBIC, and World Bank. To strengthen field level monitoring, the Government recently established a high-level working group on food grain management (with the participation of FAO, USAID and WFP), headed by the director general of the Directorate of Food, to ensure efficient food distribution to the poor and effective monitoring. MoFDM will submit quarterly reports in an appropriate format to the Finance Division, FSSC, and ADB no later than 3 weeks after the end of each quarter. The quarterly reports will cover progress and distribution through different safety net programs, and the expected completion date of the procurement of food grains. 47. More resources will be allocated through the attached TA project for additional support in specific areas. Based on recent evaluation of the Government’s safety net programs, the TA project complementing ongoing and planned support by EC and USAID will help develop results-based monitoring through the integration of an impact evaluation system to track qualitative changes over time and promote active participation of partners in the monitoring. Greater emphasis will be placed on developing independent monitoring by IMED and external audit by FAPAD, as well as building the monitoring capacity of the line agencies to minimize leakage. Because of low administrative capacity within ministries, options for contracting out program monitoring to independent and competitively selected agencies will be considered with the assistance of the development partners. 48. Capacity development support will be provided under the attached TA to manage food procurement and distribution in a transparent and effective manner. The anticorruption measures adopted under the emergency assistance loan include (i) strict financial management with submission of annual audited accounts and internal audit report by the EA; (ii) strengthened government monitoring; (iii) strong project supervision with appropriate TA consultancy input; (iv) periodic reviews of accounts, statements of expenditure, and close monitoring of the safety net programs; and (v) random and independent spot checks by ADB staff and the TA consultants in coordination and consultation with the Government.

6. Anticorruption Policy

49. ADB’s Anticorruption Policy (1998, as amended to date) was explained to and discussed with the Government. Consistent with its commitment to good governance, accountability, and transparency, ADB reserves the right to investigate, directly or through its agents, any alleged corrupt, fraudulent, collusive, or coercive practices relating to the Project. To support these efforts, relevant provisions of ADB’s Anticorruption Policy will be applied in project implementation. 50. The Government and EA agree to cooperate with any such investigation and extend necessary assistance, including access to all relevant books and records, as well as engagement of independent experts that may be needed for satisfactory completion of such investigations.

7. Disbursement Arrangements

51. All disbursements will be in accordance with ADB’s Loan Disbursement Handbook (2007, as amended from time to time) or as agreed with ADB. An imprest account will be established by the EA in Bangladesh Bank. The EA will be responsible for managing and

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administering the imprest account in accordance with ADB’s Loan Disbursement Handbook. The specific additional arrangements are as follows:

(i) Retroactive financing. Withdrawal applications must be accompanied by a certificate of the EA confirming that the value of the eligible expenditures is greater than the loan amount claimed for disbursement.

(ii) Imprest fund procedure. Withdrawal applications must be accompanied by a certificate of the EA confirming that the amount of eligible expenditures to be paid for by MoFDM during the period from loan effectiveness to 30 June 2009 is projected to be greater than the amount of the requested withdrawal. Payments from the imprest account should only be used for financing essential imports (Appendix 10). Advances to the imprest account will be liquidated with appropriate supporting documentation as agreed by ADB. ADB will reserve the right to audit the use of the loan proceeds and verify the accuracy of the Government’s documentation.

8. Accounting, Auditing, and Reporting

52. The EA will maintain records and accounts adequate to identify the goods financed by the loan proceeds. Project accounts will be set up in accordance with sound accounting principles. The EA will ensure that the consolidated project accounts and related financial statements will be audited annually by the Office of the Comptroller and Auditor General of Bangladesh. The audited reports and related financial statements in English will be submitted to ADB not later than 6 months after the end of the fiscal year to which they relate. The audits include the auditor’s opinion on the use of the procedures for imprest account and statement of eligible imports. In addition to the government audit, for the procurement of goods financed from this loan, ADB or its agents will undertake a special audit in coordination with FAPAD and IMED, as part of the TA project. The MoFDM will provide ADB, through the EA, an overall project completion report providing detailed evaluation of the project design, costs, performance, social and economic impact, and other details as requested by ADB.

9. Project Performance Monitoring and Evaluation 53. The EA will carry out project performance monitoring and evaluation and will report to ADB on a monthly basis. Baseline indicators and targets are indicated in the design and monitoring framework (Appendix 1). The monthly reports and other outputs will provide inputs to the Project’s quarterly and overall progress reporting.

10. Project Review 54. ADB will conduct regular reviews throughout project implementation. Given the implementation period and emergency nature of the Project, no midterm review will be conducted unless ADB and the Government deem it necessary.

IV. TECHNICAL ASSISTANCE 55. TA for Strengthening the Government’s Institutional Capacity for Improving Food Security will be provided to support reform measures and fiduciary oversight supported by the Project (Appendix 12). The objective of the TA project is to improve the Government’s capacity for planning and undertaking mid- and long-term interventions to improve food security, including strengthening monitoring for increasing the efficiency of ongoing safety net programs.

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The activities of MoFDM will focus on improving the institutional capacity of the ministry to administer, manage, and monitor safety net programs. Activities under the Ministry of Agriculture (MOA) will help strengthen the institutional capacity of its policy, planning, and coordination unit for planning of food production, input requirement, and procurement and distribution of inputs. The cost of the TA project is estimated at $660,000. ADB will provide $600,000 on a grant basis from ADB’s TA funding program. MoFDM will be the EA for the TA, and MOA will be the coordinating agency. An interministerial steering committee chaired by the secretary of MoFDM will oversee and monitor activities under the TA project. MoFDM will appoint a project director and MOA will appoint a project coordinator, both at the joint secretary or equivalent level. The TA project will commence on 1 September 2008 and will continue for 10 months. Activities under this TA project will be undertaken in close coordination with the ongoing and planned TA project for food policy implementation and monitoring, funded by EC and USAID and executed by FAO.

V. PROJECT BENEFITS, IMPACTS, ASSUMPTIONS, AND RISKS A. Economic Benefits 56. The Project will provide emergency assistance to the Government for expanding targeted safety nets for the poor and vulnerable at a time when there are inadequate budgetary resources for financing these programs. It will assist in sustaining domestic and external balances, affected by heightened international prices of food grains and other commodities. The increased availability of food grains caused by the larger imports (facilitated by this financing) will exert downward pressure on food grain prices. The assistance will foster macroeconomic stability by reducing the need for domestic borrowing, thus dampening inflationary pressures and avoiding crowding out domestic investment. Fiscal space will be created, making it possible to reallocate resources to other essential public expenditures. The quick-disbursing nature of the Project will also imply that the assistance would be provided timely to the targeted beneficiaries. Well-coordinated and targeted safety net programs will provide direct support to the neediest at a substantially lower cost than more broad-based actions. B. Poverty and Social Impacts 57. The Project will help restore the purchasing power of the poor and vulnerable who are at a greater risk of hunger and malnutrition. Those most vulnerable to food price shocks will be protected from nutritional deprivation, erosion in real income, and asset shedding. A summary of the poverty reduction and social strategy is in Appendix 13. The Project will benefit 5 million people—including men, women, and children—by creating and enhancing their access to food, livelihood, and employment. Poor and female-headed households will receive special preference while designing such programs according to the Government’s current policy and practice. These households will also benefit from the increased supply of essential food commodities at the market, helping women manage household food requirements. Disadvantaged groups—including the landless, indigenous people, and other vulnerable groups—will be covered under the programs. The Project will benefit the most vulnerable with short-term relief of food and basic necessities in times of food crisis. The employment guarantee scheme for the poor and vulnerable will address extreme poverty by providing employment opportunities in poverty-stricken areas. The TA project will help identify bottlenecks in delivering the safety net programs, suggest mechanisms to improve the programs’ effectiveness and coverage, and reduce leakages from the targeted programs. These will also benefit the poor and vulnerable. The TA project will also suggest means to ensure that indigenous peoples and other vulnerable groups have greater access to the benefits of the safety net programs.

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C. Land Acquisition and Involuntary Resettlement

58. A resettlement framework was not prepared since the Project involves budgetary support for safety net programs, with no provision for any land acquisition or resettlement. D. Environmental Impacts

59. The Project is classified category C, in accordance with ADB’s Environment Policy (2002). Therefore, no environmental assessment was required. E. Risks

60. Because of the huge volume of emergency food to be distributed, there are some risks in the areas of storage and distribution, leakages, and lack of financial accountability in safety net programs. Over time, Bangladesh has developed good capacity and long experience in managing public food grain distribution and has strengthened the safeguards necessary to implement the safety net and public food distribution programs and systems effectively. Recent measures, such as the establishment of a working group with donor participation to monitor the public food programs, will mitigate these risks. Moreover, the Project and associated TA include fiduciary oversight of the components of the funds provided and disbursed for safety net spending. Another risk is the recurrence of natural disasters, and the related extensive damages, which would strain the country’s administrative capacity in distributing food and other essentials, and exert fresh pressures on the budget, involving additional import of these items. This is addressed by adopting appropriate mitigation and cost-effective adaptation measures against floods and cyclones, including capacity building, which would reduce damage from future disasters.

VI. ASSURANCES 61. In addition to the standard assurances, the Government, Finance Division, and MoFDM have given the following assurances, which are incorporated in the legal documents:

(i) Public food distribution. Within 6 months of loan effectiveness, MoFDM will further improve the implementation procedures of the Government public food distribution system to enhance the public food procurement procedures and the management, distribution, and storage systems for public food.

(ii) Improving effectiveness of safety net programs. Within 6 months of loan effectiveness, MoFDM, in coordination with the relevant government agencies will improve the efficiency and effectiveness of the safety net programs by integrating improved mechanisms to reach really needy vulnerable groups in the remote areas and including good governance measures.

(iii) Submission of quarterly progress reports. MoFDM will submit quarterly reports to the EA and ADB on the status and progress of the project-related safety net programs no later than 3 weeks after the end of each quarter.

(iv) Audits. The Comptroller and Auditor General of Bangladesh will conduct an independent financial audit(s) during project implementation to determine the degree to which project funds were utilized observing standard financial propriety, practices, and regularity. Other audits, as required under ADB’s Disaster and Emergency Assistance Policy, including a performance evaluation of the safety net programs supported by this loan, will be undertaken.

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(v) Implementation Monitoring and Evaluation Division of the Ministry of Planning. The EA will ensure performance evaluation of the Government’s safety net programs and other project services by IMED and submission of its inspection report to ADB not later than 6 months after the completion of each fiscal year.

(vi) Anticorruption. Consistent with its Anticorruption Policy and commitment to good governance, accountability, and transparency, ADB reserves the right to investigate directly, or through its agents, any possible financial or management impropriety in implementing the Project.

(vii) Focal point to handle complaints. The EA will appoint a focal point in the respective agencies to address any public complaints on financial irregularities in procurement and distribution of food grains, and other services relevant to this loan and will ensure that appropriate grievance procedures are effectively implemented. The EA will provide a biannual review and report to ADB on complaints received and resolutions undertaken.

(viii) Subsidies. The Government will undertake dialogue and continue to review options with the assistance of ADB and other development partners, to address the sustainability of various subsidies affecting the agriculture sector.

(ix) Road map to increase agriculture productivity. The Government will approve and implement the plan of action that has been developed to implement the national food policy within 26 identified areas of interventions with the assistance of the development partners.

VII. RECOMMENDATION

62. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Asian Development Bank (ADB) and recommend that the Board approve

(i) the loan in various currencies equivalent to Special Drawing Rights 104,247,000 to the People’s Republic of Bangladesh for Emergency Assistance for Food Security Project, from ADB’s Special Funds resources, with an interest charge at the rate of 1.0% per annum during the grace period and 1.5% per annum thereafter; a term of 32 years, including a grace period of 8 years; and such other terms and conditions as are substantially in accordance with those set forth in the draft Loan Agreement presented to the Board; and

(ii) the administration by ADB of loans or grants in accordance with the proposal set out in paragraph 40 of this report for the Emergency Assistance for Food Security Project to be provided by any development partner or co-financier on a loan or a grant basis, after the date of the Board’s approval of the project loan.

Haruhiko Kuroda President

14 July 2008

Appendix 1 20

DESIGN AND MONITORING FRAMEWORK

Design Summary

Performance Targets and/or

Indicators

Data Sources and/or Reporting

Mechanisms

Assumptions and Risks Impact The main impact of the Project will be to prevent poverty from rising

(i) 5 million poor and

vulnerable people have better access to food

(ii) The country sustains its fiscal and external balances

(i) National economic

data and indicators

(ii) District statistics and data, surveys, including poverty reduction surveys

Outcome The Project will improve the food security of poor and vulnerable people affected by repeated natural disasters and rising food prices

58.41 million person- months of food safety nets coverage provided to poor and vulnerable

(i) Government‘s

progress reports (ii) Audit reports (iii) Project progress

reports (iv) Project review

missions (v) Surveys and

socioeconomic survey as part of project completion report

Assumptions (i) Strong Government

commitment (ii) Institutional capacity is

strengthened in selecting, designing, and implementing safety net programs

(iii) Adoption of anticorruption measures and improved governance for implementation of safety net programs

Risk Leakages and lack of financial accountability in safety net programs and recurrence of natural disasters

Outputs

(i) Strengthened open market sales of food grains with wider coverage to ensure food security of targeted poor and vulnerable people

(ii) Enhanced food

entitlements for the poor and vulnerable to survive short-term food deficits

1.1 million person- months of food accessed through open market sales (i) 1.1 million person-

months of food assistance accessed through vulnerable group development program

(ii) 2.9 million person-months of food assistance accessed through vulnerable group feeding program

(iii) 0.25 million person-months of food aid accessed through test relief

(iv) 0.42 million person- months of food

(i) Customs data (ii) Government

progress reports (iii) Audit reports (iv) Project progress

reports (v) Project review

missions (vi) Surveys and

socioeconomic survey as part of project completion report

Assumption Timely imports of essential food items for safety net programs and fertilizer for agriculture production

Appendix 1 21

Design Summary

Performance Targets and/or

Indicators

Data Sources and/or Reporting

Mechanisms

Assumptions and Risks (iii) Enhanced purchasing

power of the poor and vulnerable through generating rural employment

(iv) More effective and

efficient food security monitoring system

assistance accessed through gratuitous relief

(v) Chittagong Hill Tracts tribal people access 92,000 person-months of food assistance

(vi) 0.62 million person-months of food assistance accessed through food for work

1 million person-months of employment opportunities created in poverty stricken rural areas Food security monitoring system produces reliable reports

Activities with Milestones Safety net coverage scaled up by 34% Safety net spending rises to 1.5% of gross domestic product Project completion June 2009

Inputs (i) Asian Development

Bank loan of $170 million, and $1,123 million funded by the Government and other development partners

(ii) Technical assistance $600,000

Appendix 2 22

FOOD-GRAIN SITUATION IN BANGLADESH Indicator FY2000 FY2006 FY2007 FY2008b

A. Population (million) 129.80 138.80 140.60 142.40 B. Per Capita Requirement (kg/year) 178.50 178.50 178.50 178.50 1. Rice (kg/year/capita) 158.32 158.32 158.32 158.32 2. Wheat (kg/year/capita) 20.18 20.18 20.18 20.18 C. Total Requirement (A×B, million tons)a 23.17 24.78 25.10 25.42 3. Rice (A × 1, million ton) 20.55 21.97 22.26 22.54 4. Wheat (A × 2, million ton) 2.62 2.81 2.84 2.88 D. Domestic Gross Production (8+9, million tons) 24.91 27.28 28.05 29.00 5. Aus (million tons) 1.73 1.75 1.51 1.51 6. Aman (million tons) 10.31 10.81 10.84 9.66 7. Boro (million tons) 11.03 13.98 14.96 17.00 8. Total Rice (5+6+7, million tons) 23.07 26.54 27.31 28.17 9. Wheat (million tons) 1.84 0.74 0.74 0.83 E. Deduction (10%) for Seed, Feed, and Wastage (10+11) 2.49 2.73 2.81 3.48 10. Rice (8 × 0.1, million tons) 2.31 2.65 2.73 3.38 11. Wheat (9 × 0.1, million tons) 0.18 0.08 0.08 0.10 F. Availability for Consumption (D–E, million tons) 22.42 24.55 25.24 25.52 12. Rice (8–10, million tons) 20.76 23.89 24.58 24.79 13. Wheat (9–11, million tons) 1.66 0.66 0.66 0.73 G. Production–Demand Gap (F–C, million tons) -0.75 -0.23 0.14 0.10 14. Rice Production–Demand Gap (12–3, million tons) 0.21 1.92 2.32 2.25 15. Wheat Production–Demand Gap (13–4, million tons) -0.96 -2.15 -2.18 -2.15 H. Market Availability of Food Grains (F+16+17-18, million

tons) 24.58 27.12 27.79 29.33

16. Government Off-Take (million tons) 1.90 1.25 1.48 1.51 17. Private Imports (million tons) 1.23 2.27 2.21 2.90 18. Government Domestic Procurement (million tons) 0.97 0.95 1.14 0.60 I. Market Surplus (H-C, million tons) 1.41 2.34 2.69 3.91 J. Coarse Rice Price (Tk/kg) 13.94 16.28 17.79 32.09 K. Wheat Price (Tk/kg) 8.51 14.37 17.50 30.62

kg = kilogram. a The total food grains requirement calculation has several limitations including non-availability of point data on

population. Also per capita requirement of rice does not consider the variety of rice (fine, medium, and coarse) consumption and the substitutability between rice and wheat.

b Estimates. Notes: 1. For FY2008, a 12% deduction for seed, feed, and wastage is considered because of successive natural disasters. 2. Prices for coarse rice and wheat in FY2008 are monthly average prices in April 2008. Sources: Bangladesh Bureau of Statistics; Ministry of Food and Disaster Management, Government of Bangladesh; and Asian Development Bank estimates.

Appendix 3 23

PUBLIC FOOD PROCUREMENT (million tons)

Item FY2005 FY2006 FY2007 FY2008 Estimate

FY2009 Projection

A. Public Procurement (1+2) 1.29 1.24 1.35 1.73 3.00 1. Public Import (a+b) 0.39 0.29 0.21 1.13 1.55 a. Aided Import 0.29 0.19 0.09 0.43 0.25 b. Commercial Import 0.10 0.10 0.12 0.70 1.30 2. Domestic Procurement 0.90 0.95 1.14 0.60 1.45 B. Public Off-Take (1+2) 1.35 1.25 1.48 1.51 2.40 1. Priced 0.51 0.35 0.71 0.55 0.80 2. Non-Priced 0.84 0.90 0.77 0.96 1.60 FY = fiscal year. Source: Directorate General of Food, Ministry of Food and Disaster Management, Government of Bangladesh.

Appendix 4 24

MAJOR ECONOMIC INDICATORS

Particulars FY2002 FY2003 FY2004 FY2005 FY2006 FY2007 FY2008c FY2009d Population Mid-year population (million) 131.6 133.4 135.2 137.0 138.8 140.6 142.4 144.3 National Accounts GDP per capita ($) 361.0 389.0 418.0 441.0 447.0 487.0 554.0 611.0 GNI per capita ($) 378.0 411.0 440.0 463.0 476.0 523.0 599.0 Real GDP growtha (%) 4.4 5.3 6.3 6.0 6.6 6.4 6.2 6.5 Agriculture 0.0 3.1 4.1 2.2 4.9 4.6 3.6 4.0 Industry 6.5 7.3 7.6 8.3 9.7 8.4 6.9 7.9 Services 5.4 5.4 5.7 6.4 6.4 6.9 6.7 6.8 Nominal GDP growth (%) 7.8 10.0 10.8 11.3 12.1 13.7 14.7 15.5 GDP at current market prices ($ billion) 47.6 51.9 56.5 60.4 62.0 68.4 79.0 88.2 Gross domestic investment/GDP 23.2 23.4 24.0 24.5 24.7 24.3 25.0 Private investment/GDP 16.8 17.2 17.8 18.3 18.7 18.7 19.2 Public investment/GDP 6.4 6.2 6.2 6.2 6.0 5.6 5.8 Gross domestic savings/GDP 18.2 18.6 19.5 20.0 20.3 20.4 20.1 National savings/GDP 23.4 24.9 25.4 25.8 27.7 28.7 29.2 Price and Exchange Rates Inflation rate (CPI; %) 2.8 4.4 5.8 6.5 7.2 7.2 10.0 9.0 Exchange rate (average; Tk/$) 57.4 57.9 58.9 61.4 67.1 69.0 68.6 71.0 Money and Credit Money supply (M2) growth (%) 13.1 15.6 13.8 16.8 19.5 17.0 16.3 16.2 Domestic credit growth (%) 12.5 8.2 14.4 17.5 20.5 14.9 18.4 13.3 Public sector credit growth 9.7 (3.7) 15.3 19.1 27.0 14.4 28.5 8.7 Government (net) credit growth 14.5 (4.9) 13.8 16.8 23.6 13.8 47.6 13.7 Other public sector credit growth (1.5) (0.5) 18.9 24.8 34.9 15.6 (17.4) (12.7) Private sector credit growth 13.5 12.7 14.2 17.0 18.3 15.1 15.1 14.9 Central Government Finance Revenue/GDP 10.1 10.3 10.1 10.5 10.7 10.3 11.2 11.1 Tax/GDP 7.7 8.3 8.2 8.5 8.5 8.3 8.9 9.1 Non-Tax/GDP 2.4 2.0 1.9 2.0 2.2 2.0 2.3 2.0 Total expenditure/GDP 14.8 13.7 13.3 13.9 13.9 13.5 15.9 16.0 Current expenditure/GDP 8.0 8.1 7.8 8.4 8.4 9.2 9.9 9.9 ADP/GDP 5.6 5.4 5.0 5.0 4.7 4.1 4.2 4.1 Other expenditure/GDP 1.2 0.2 0.5 0.5 0.8 0.2 1.8 2.0 Fiscal balance/GDP(excluding grants) (4.6) (3.4) (3.2) (3.4) (3.2) (3.2) (4.7) (4.9) Foreign financing/GDP 2.1 2.1 1.1 1.6 1.2 1.2 2.4 2.2 Domestic financing/GDP 2.5 1.3 2.1 1.8 2.0 2.0 2.3 2.7 Primary fiscal balance/GDP (3.0) (1.5) (1.4) (1.7) (1.4) (1.3) (2.5) (2.9) Balance of Payments Exports (million $) 5,929.0 6,492.0 7,521.0 8,573.0 10,412.0 12,053.0 13,861.0 15,940.0 Export growth (%) (7.6) 9.5 15.9 14.0 21.5 15.8 15.0 15.0 Imports (million $) 7,697.0 8,707.0 9,840.0 11,870.0 13,301.0 15,511.0 19,079.0 22,894.0 Import growth (%) (8.7) 13.1 13.0 20.6 12.1 16.6 23.0 20.0 Current Account balance/GDP 0.3 0.3 0.3 -0.9 1.3 1.4 0.5 (0.5) Workers' remittances ($ million) 2,501.1 3,062.0 3,372.0 3,848.3 4,801.9 5,978.5 7,940.1 9,528.1 Gross international reserves ($ million) 1,582.9 2,469.6 2,705.0 2,929.9 3,483.8 5,077.2 6,149.0 6,700.0 Reserves in months of imports of goods and services 2.1 2.9 2.8 2.5 2.7 3.3 External Indebtedness Govt. debt outstanding/GDP 50.0 49.0 48.2 46.9 46.6 44.9 ─ Of which: External debt/GDP 33.4 32.7 31.8 30.5 30.0 28.3 ─ Domestic debt/GDP 16.6 16.3 16.4 16.4 16.6 16.6 ─ Debt service ratiob (%) 6.3 5.8 5.0 4.8 4.1 3.7 4.0 ( ) = negative, ─ = not available, ADP = annual development program, CPI = consumer price index, GDP = gross domestic product, GNI = gross national income. a Based on constant 1995/96 market prices.

b Represents the ratio of debt service on medium- and long-term loans to total foreign exchange earnings from exports of goods and nonfactor services plus workers' remittances.

c Estimates. d Forecast. Sources: Bangladesh Bureau of Statistics; Bangladesh Bank; Export Promotion Bureau; Ministry of Finance and Asian Development Bank estimates.

Appendix 5 25

SYNOPSIS OF THE NATIONAL FOOD POLICY PLAN OF ACTION

Area of Intervention Priorities for Action

A. NFP Objective 1: Adequate and stable supply of safe and nutritious food

1.1. Agricultural research and extension

Developing and disseminating demand-driven crop and non-crop new technologies; expanding demand-led and pro-poor extension services.

1.2. Use and management of water resources

Increasing irrigation coverage; improving delivery and efficient use of safe irrigation water; reducing dependency on ground water; reducing cost of irrigation water.

1.3. Supply and sustainable use of agricultural inputs

Increasing supply of quality crop and non-crop seeds, timely supply of fertilizers and balanced use of fertilizers; increasing efficiency and sustainability of agricultural land use; improving availability and affordability of agricultural machinery and equipment; strengthening integrated pest management and integrated crop management practices.

1.4. Agricultural diversification Increasing and improving management of production of high value crops, fish and livestock products.

1.5. Agricultural credit and insurance

Increasing institutional financing in agriculture, especially for the small and marginal farmers; improving coverage of financial loss due to production failures.

1.6. Physical market infrastructure development

Improving private storage, market and transportation facilities, improving market connectivity at local, national and international levels.

1.7. Agricultural marketing and trade

Reducing marketing costs of agricultural products and strengthening market integration.

1.8. Policy and regulatory environment

Updating, enacting, and enforcing legislation for food markets.

1.9. Early warning system development

Establishment of well-functioning domestic early warning system integrated/ coordinated with the global early warning system.

1.10. Producer price support Enhancing effectiveness of the public procurement system; providing effective support to producer price during post harvest seasons.

1.11. Public stock management/price stabilization

Improving pubic stock management, public storage facilities and capacities and enhancing effectiveness of open market sales operations.

B. NFP Objective 2: Increased purchasing power and access to food of the people

2.1. Agricultural disaster management

Enhancing disaster preparedness and post-disaster rehabilitation in agricultural systems.

2.2. Emergency food distribution for public stocks

Improving coverage and effectiveness of emergency distribution programs.

2.3. Enabling environment for private food trade and stock

See areas of intervention under 1.6, 1.7, and 1.8.

2.4. Effectiveness of targeted food security programs and other safety nets

Improving coverage of vulnerable and disadvantaged people and areas (especially, severe food insecurity areas); targeting; cost-effectiveness; reducing leakage; enhancing adequacy to vulnerable people’s nutritional needs.

Appendix 5 26

Area of Intervention Priorities for Action 2.5. Income generation for women and the disabled

Enhancing participation of women and disabled people in rural agricultural and other rural activities.

2.6. Agro-based/agro-processing/ micro, small, and medium-sized enterprises development

Supporting the expansion of agro-based/agro-processing industries and micro, small, and medium-sized enterprises.

2.7. Market driven education, skills and human development

Enhancing quality of technical and vocational education and training to meet skill requirements of domestic and international markets.

C. NFP Objective 3: Adequate nutrition for all individuals, especially women and children

3.1. Long-term planning for balanced food

Establishing long-term targets for physical growth, standard food and nutrient intake for different population groups and an integrated plan for attaining standard food intakes targets.

3.2. Balanced and nutritious food for vulnerable people

Increasing availability of low-cost items through local production; Improving coverage of poor, distressed and vulnerable women and children by food-based nutrition programs, including growth monitoring and promotion.

3.3. Nutrition education on dietary diversification

Increasing the percentage of women educated in nutrition and primary health care activities through formal and non-formal education; increasing home gardening and poultry raising activities by poor households.

3.4. Food supplementation and fortification

Increasing coverage of vitamin A, coverage and compliance of iron-foliate supplementation and coverage of households with adequately iodized salt.

3.5. Safe drinking water and improved sanitation

Ensuring safe water and sanitation availability and accessibility for all by 2010.

3.6. Safe, quality food supply Enhancing access to safe and quality food, for domestic consumption and also for international trade.

3.7. Women’s and children’s health

Increasing primary health care and antenatal care coverage, skilled attendance at birth; improving access to health services; promoting healthy lifestyles and behaviour.

3.8. Promotion and protection of breastfeeding and complementary feeding

Strengthening exclusive breastfeeding practices; expanding practice of breastfeeding; ensuring safe and nutritious complementary feeding; strengthening baby-friendly hospital initiative; increasing maternity leave; enforcing breast milk substitutes codes among breast milk substitute marketers.

NFP = national food policy. Source: Ministry of Food and Disaster Management, Government of Bangladesh.

Appendix 6 27

SUMMARY OF SAFETY NET PROGRAMS

Name of Program Major Goals and Features Administration Targeting Criteria Value of Benefit

Number of Beneficiaries in

FY2009

Costs for FY2009

($ million)

Open Market Sales

(i) Mitigate hardship of poor people affected by higher food prices

(ii) Open market sales of food grains including edible oil, lentil, and onion for vulnerable and poor

(iii) Keep the price of food grains under control

(i) Ministry of Food and Disaster Management

(i) Poor and vulnerable in the urban areas

(ii) Low-income groups, government employees, industrial workers, and others with fixed incomes

(i) 5 kg each time 8.50 million person-months of poor and vulnerable with targeted efficiency and coverage

389.93

Vulnerable Group Development

(i) Training, motivating savings for initial capital accumulation and providing scope for availing credit

(ii) Building social awareness on disaster management, civil and legal rights and nutrition through training in groups

(iii) Transfer of food-grains by the public food distribution system

(i) Ministry of Food and Disaster Management

(ii) Ministry of Women and Children Affairs

(i) Households with not more than 1.5 acres of land

(ii) Household headed by a woman with no adult male income earner

(iii) Monthly household income less than Tk300

(iv) Dependent upon seasonal wage employment

(v) Women of reproductive (18–49) age

(vi) Day labor or temporary worker

(vii) Lack of productive assets

(i) 30 kg/person/ month of food-grains

(ii) Training (totaling about 150 hours)

(iii) Per cycle of 24 months on graduation, beneficiaries can access BRAC’s microcredit program

8.83 million person-months of poor and vulnerable with targeted efficiency and coverage

121.96

Vulnerable Group Feeding

(i) Provide calamity related emergency needs

(ii) Short-term relief of food and basic necessities to the victims of natural disasters

(i) Ministry of Food and Disaster Management

(i) Generally a location is targeted based on the occurrence of natural disasters

(i) 10 kg/person/ month of food-grains for 3 months

22.50 million person-months of poor and vulnerable with short-term relief of food and basic necessities

103.22

Appendix 6 28

Name of Program Major Goals and Features Administration Targeting Criteria Value of Benefit

Number of Beneficiaries in

FY2009

Costs for FY2009

($ million)

Test Relief (Food)

(i) Employment for the landless and low-income households in the rainy season

(ii) Development and maintenance of Infrastructure

(iii) Labor requirement is lighter compared to the “Food for Work”

(iv) Food-grain transfer by the public food distribution system

(i) Ministry of Food and Disaster Management

(i) Generally a location is targeted based on rainy season

(ii) Dependent upon seasonal wage employment

(i) 3.5 kg/person/ day; 30 days 105 kg/person of food-grains

1.91 million person-months of employment for poor and vulnerable

92.05

Gratuitous Relief (Food)

(i) Provide calamity-related emergency needs

(ii) Short-term relief of food and basic necessities to the victims of natural disaster

(i) Ministry of Food and Disaster Management

(i) Generally a location is targeted based on the occurrence of natural disaster.

(i) 20 kg/person/ month of food-grains

3.2 million person-months of employment through food-grains transfer

29.36

Food Assistance in Chittagong Hill Tracts

(i) Provide food assistance for poor and vulnerable people in Chittagong Hill Tracts Area

(ii) Different development activities including employment through the food aid

(i) Ministry of Food and Disaster Management

(ii) Ministry of Chittagong Hill Tracts Affairs

(i) Generally 0.8 million people living in Chittagong Hill Tracts Area

(ii) Mainly 12 ethnic/tribal groups in the area

(i) 3.5 kg/person/ day; 30 days 105 kg/person of food-grains.

Poor and vulnerable will get food assistance for 0.71 million person-months

34.68

Food for Work (i) Employment for the poor (functionally landless) and ultra-poor, mainly in the dry season through infrastructure development and maintenance

(ii) Food-grain transfer by the public food distribution system

(i) Ministry of Food and Disaster Management

(i) Functionally landless (ii) Lack of productive

assets (iii) Generally households

headed by women where women are widowed, deserted, and destitute

(iv) Day labor or temporary worker

(i) 3.5 kg/person/ day; 30 days 105 kg/person of food-grains.

4.76 million person-months of employment

229.98

Appendix 6 29

Name of Program Major Goals and Features Administration Targeting Criteria Value of Benefit

Number of Beneficiaries in

FY2009

Costs for FY2009

($ million) 100 Days Employment Scheme

(i) Ensure employment for 2 million rural unemployed for at least 100 days during the whole year, particularly, during mid-October to mid-January and mid-March to mid-May periods

(i) Ministry of Food and Disaster Management

(i) Functionally landless (ii) Lack of productive

assets (iii) Dependent upon

seasonal wage employment

(i) Daily remuneration of Tk100/person for 100 days

8 million person-months of employment in poverty stricken areas

291.55

BRAC = Bangladesh Rural Advancement Committee, FY = fiscal year, kg = kilogram. Sources: Ministry of Finance; Ministry of Food and Disaster Management, Government of Bangladesh; and Joint Needs Assessment Mission (May–June 2008).

Appendix 7 30

CHANNEL-WISE FOOD DISTRIBUTION (million tons)

Item FY2005 FY2006 FY2007 FY2008 Estimate

FY2009 Projection

A. Rice 1. Priced Essential Priority 0.14 0.15 0.15 0.15 0.14 Other Priority 0.01 0.01 0.01 0.01 0.02 Large Employer Institutes

0.00 0.00 0.01 0.01 0.01

Open Market Sales 0.24 0.02 0.41 0.26 0.40 Others (Fair Price) 0.00 0.05 0.00 0.00 0.00

Subtotal (A1) 0.39 0.23 0.58 0.43 0.57 2. Non-Priced Food for Work 0.13 0.23 0.12 0.13 0.35 Vulnerable Group Development

0.11 0.17 0.12 0.10 0.20

Test Relief (Food) 0.12 0.17 0.15 0.11 0.20 Gratuitous Relief 0.07 0.03 0.03 0.06 0.08 Vulnerable Group Feeding

0.22 0.13 0.23 0.28 0.50

Hill Tracts/Others 0.06 0.05 0.06 0.06 0.04 Subtotal (A2) 0.71 0.78 0.71 0.74 1.37 Subtotal (A) 1.10 1.01 1.29 1.17 1.94

B. Wheat 1. Priced Essential Priority 0.10 0.10 0.11 0.11 0.11 Other Priority 0.01 0.01 0.01 0.01 0.01 Large Employer Institutes 0.01 0.01 0.01 0.00 0.01 Open Market Sales 0.00 0.00 0.00 0.00 0.10 Others (Fair Price) 0.00 0.00 0.00 0.00 0.00

Subtotal (B1) 0.12 0.12 0.13 0.12 0.23 2. Non-Priced Food for Work 0.00 0.01 0.00 0.06 0.10 Vulnerable Group Development

0.09 0.08 0.04 0.10 0.05

Test Relief 0.00 0.00 0.00 0.04 0.05 Gratuitous Relief 0.00 0.00 0.00 0.00 0.00 Hill Tracts/Others 0.04 0.03 0.02 0.02 0.03

Subtotal (B2) 0.13 0.12 0.06 0.22 0.23 Subtotal (B) 0.25 0.24 0.19 0.34 0.46

Total (A+B):

1.35

1.25

1.48

1.51

2.40

FY = fiscal year. Source: Directorate General of Food, Ministry of Food and Disaster Management, Government of Bangladesh.

Appendix 8 31

SAFETY NET PROGRAM IN BANGLADESH1

1. In Bangladesh, safety net program is a programmatic mechanism for maintaining social harmony through redistribution of resources/foods toward the disadvantaged groups. It plays a ‘social insurance’ role through alleviating miseries of the poor and vulnerable or those at risk of hunger due to any irreparable physical or economic shocks. Since the early 1970s, safety net programs have had a tremendous impact on the improvement in the overall food security and nutrition status of the poorest people in Bangladesh. These programs have helped the poor and vulnerable to improve their livelihoods, health and nutrition status, particularly for women and children, and income generation. Women became more empowered than before and their ability to make decisions, mobilize resources, and exercise choices over various aspects of their lives have improved. Income transfers from the safety net programs also played an important role in protecting and expanding asset bases of the poor and vulnerable. While safety net programs are an important component of the government’s social protection strategy, expenditure on the programs is fairly low and lower than what other countries at similar levels of development spend on these programs. 2. Safety net programs are mainly administered through the Ministry of Food and Disaster Management, Ministry of Social Welfare, and the Ministry of Women and Children’s Affairs (Appendix 6). Many of the programs are implemented in collaboration with the nongovernment organizations and are often cofinanced by the development partners. While the largest programs are food-based, conditional cash transfers have become increasingly important, including improved access to schooling for children, particularly for the girl children. But the fiscal constraints inhibit the program coverage to its desired level. 3. Food security safety nets operation is a system that has been carried out through the public food distribution system (PFDS) under the Directorate of Food, developed over the years with support of development partners. The PFDS plays three key roles: (i) providing price incentives to Bangladeshi farmers for increased production, through domestic procurement of rice and wheat; (ii) maintaining a security stock of food grains to meet emergencies arising from disasters such as floods and cyclones; and (iii) supplying food-grains to various groups of the population. The PFDS’ stocks of food grains must be rotated to accommodate new stocks and to prevent losses resulting from quality deterioration. The PFDS operates through 15 distribution channels that broadly fall into two groups: monetized and non-monetized channels. The latter are comprised of the food-based safety net programs, accounting for 71% of the total PFDS distribution. 4. Safety net programs made major contributions toward price stabilization, particularly of food-grains, as well as in the reduction of the national poverty level, through protection from the further worsening of the hunger situation and the avoidance of a major joblessness situation. Those who were extreme poor but lived closer to the poverty line were able to escape extreme poverty. These programs also played a major role in developing and improving the country's communication through building roads, flood protection and improvement of the irrigation facilities specifically through the construction and maintenance of embankments and channels,

1 This section is based on the following reports: World Bank. 2005. Bangladesh Social Safety Nets in Bangladesh: An Assessment, Report No. 33411-BD.

Washington, DC. World Bank. 2007. Survey on Social safety Nets Programs in Bangladesh (draft version).

International Food Policy Research Institute. 2007. Relative Efficacy of Food and Cash Transfers in Improving Food Security and Livelihood of the Ultra-poor in Bangladesh. Washington, DC. World Food Programme. 2006. Lessons from Thirty Years: A Brief History of WFP in Bangladesh. Dhaka.

Appendix 8 32

fish protein supply, and social forestry. The national poverty reduction strategy also emphasizes and recognizes safety net programs as a strategy for mitigating the sufferings of the poor and vulnerable groups including hardcore and ultra poor. 5. Since the last decade, Government’s safety net spending for food security has been less than 1% of GDP with coverage of about 4 million people in each year. But spending and coverage varies in times of natural disasters and subsequent food-grain production shortfall. In FY2009, the Government will need to increase safety net expenditures for food security to $1.3 billion or 1.5% of GDP for 5 million people because of higher domestic and international price of food grains. The number of people covered under various safety net programs represents only a fraction of those in needs. Increasing the coverage and maximizing the effect of the programs are therefore the major challenges. Attention is needed to: (i) increase the focus on programs that contribute to human capital development, (ii) reduce the impact of seasonality in the availability of work, (iii) increase the focus on the urban poor, and (iv) increase focus on other disadvantaged groups. Right targeting play important role in maximizing impacts of the programs. By improving currently followed targeting criteria, the safety net programs can be made more effective. To improve targeting, households will be targeted using criteria that are most closely related to occupation and income rather than assets such as land. Targeting criteria need to be consistent across programs. 6. Leakage in safety net programs remains an important issue. Monetization addresses some of the concerns regarding leakages from food transfer programs. But it is not sufficient to overcome the problem entirely. Minimizing the number of intermediaries in program delivery and making the decisions of intermediaries transparent has been considered as another option. Even when benefits have been monetized, transfers that involve intermediaries making decisions about variable entitlements can lead to leakage if decisions are not transparent. Food transfers should also be based on transparent procedures that guarantee full delivery and are monitored to ensure that intermediaries are accountable. Leakage can go undetected for long periods, undermining a program, if there is little or no monitoring and evaluation. Realigning the incentives for service delivery is also a critical step in reducing leakages. Problems of leakage and misallocation may go undetected because of inadequate program monitoring and management capacity. Putting greater emphasis on external monitoring as well as building monitoring capacity of the line agencies would minimize leakage. Because of weak administrative capacity within ministries, more program monitoring could be contracted out to independent and competitively selected agencies. While line ministries should enhance their capacity to monitor programs on a day-to-day basis, this could be complemented by monitoring carried out on a random basis by external agents that would visit sites to monitor how beneficiaries are targeted and selected, assess whether beneficiaries are receiving appropriate benefits in a timely manner, and assess whether the ministry is adequately monitoring its programs. Channels should be developed to ensure that these results feed back into the planning process and are used to make informed decisions on redesigning the programs if necessary. Attention should also be given to designing alternative qualitative/participatory beneficiary assessment. Consideration also needs to be given to the application of randomized evaluation techniques for programs which are still at their early stages of development. 7. Planned in the national context, all safety net programs cannot equally address the regional specificities like proneness to frequent floods, river-erosion and seasonal unemployment. Disbursement frequencies and amounts of benefits for such areas should be different from the nationally common ones. For example, duration of vulnerable group feeding

Appendix 8 33

schemes in Monga-prone areas2 of the Northern Bangladesh need to be expanded from three months to five months. In flood prone river-basin areas, people need resettlement and house reconstruction loans as well as food subsidy during rainy seasons. While amount of vulnerable group feeding support needs to be increased in these areas especially during monsoon, food for work scheme can be considered as viable safety-net option during other periods of the year. 8. Further sharpening and improvement of the safety net programs require: (i) more investment in building management capacity of the national partners and Government, (ii) assessing sustainability issues of the project benefits with particular focus on graduation of the participants into mainstream development programs and continued access to micro-credit, (iii) skills training trades and process, (iv) involvement of male family members in the relevant awareness building sessions to make the gender mainstreaming more effective, (v) further strengthening the role of nongovernment organizations in the women selection, and (vi) improve results based monitoring through the integration of an impact evaluation system to track the qualitative changes over time and promote active participation of partners in the monitoring. The above recommendations are being and will be continued to be implemented with support of the development partners including European Commission, World Food Program, Food and Agriculture Organization, United States Agency for International Development, and ADB.

2 Monga is seasonal food insecurity in ecologically vulnerable and economically weak parts of northwestern

Bangladesh.

Appendix 9 34

BANGLADESH AGRICULTURE SECTOR ANALYSIS A. The Sector 1. In FY2007, agriculture sector contributed 22% and the rural non-farm sector largely linked with agriculture sector contributed about 33% of GDP. Small farm-size and rice- dominated farming systems with 180% cropping intensity are the key features of Bangladesh agriculture. About 85% of the poor in Bangladesh live in rural areas and depend directly or indirectly on on-farm activities for their livelihoods. Agriculture comprising of crops, livestock, fishery and forestry subsectors employs two thirds of the total labor force of the country. Ensuring food security for the growing population and reducing poverty are intimately linked. Considering food availability and affordability of common people, agricultural development remains at the forefront of the country’s development agenda. Despite a declining direct contribution of agriculture to GDP, faster growth in agriculture sector is still vital for ensuring food security and sustainable poverty reduction in Bangladesh.

1. Performance

2. In Bangladesh, the performance of crops (mostly rice) dominated agriculture sector is largely dependent on weather condition. As a disaster prone country, Bangladesh faces natural disasters like flood, cyclone almost every year, but severity, intensity, and frequency differ from year to year. During the past decades, agriculture sector performed reasonably well despite natural calamities, comparatively low investment and inadequate importance attached to the sector by domestic policy makers and the development partners. Growth averaged 3% over the period from FY1990 to FY2007 despite numerous problems and constraints including increasing high cost of production inputs.

2. Challenges and Opportunities 3. At present, the net cultivable area stands at about 9 million hectares out of total land area of about 14.8 million hectares. The cultivable land is declining due to rapid urbanization, housing and other infrastructure development including industry and an expanded roads transport network. 1 Another important shift is the increased proportion of small farm holdings with declining trend of medium and large-sized farms. Currently, the key sector challenges include (i) stagnant farm productivity; (ii) ensuring availability of critical production inputs (fertilizers, irrigation water, quality seeds, and credit) at farmers’ level; (iii) poor marketing systems for agricultural commodities; (iv) absence of adequate processing, value addition facilities and lack of enabling environment for agribusiness development; and (v) low efficiency of public agencies in providing extension and technology services to the farmers. 4. Because of agro-climatic suitability, many economically important crops including cereals can be grown throughout the year in most of the cultivable areas, which creates ample opportunities for undertaking judicious efforts for intensification and diversification of crops, particularly in the flood free zones. Over the years, the share of agriculture expenditures (crops, livestock, fisheries and forestry) in the Government budget has declined. Development partners’ support during the last decade for the sector also witnessed declining trend. Despite all challenges, since independence in 1971, the annual food production increased almost two times (about 29.0 million tons in FY2008 as against 15 million tons in FY1973) and simultaneously

1 The cultivable land has shrunk from about 66% in 1974 to 59% in 1995, mostly because of rapidly increasing

urban and residential encroachment. The net cropped area has decreased by 6% from 59% to 53% during 1974 to 1996.

Appendix 9 35

population also almost doubled (74.3 million in 1973 and 142.4 million in 2008). Despite the achievement of a near self-sufficiency in rice production over the past decades, food security remains elusive, especially in the years when production is affected by natural disasters. 5. The strategies for moving ahead in addressing these challenges include (i) a two-pronged approach for intensification of major cereal crops, particularly rice, and diversification into high value horticultural crops; (ii) ensuring availability of critical production inputs at farmers level at reasonable price; (iii) creating enabling environment for improving processing, value addition, storage, marketing and agribusiness development; (iv) increasing efficiency of public service providing agencies; and (v) building adequate food reserve for quick market intervention by the Government. B. Government Strategy

6. Recognizing the importance and impacts of agricultural development, the Government prepared and adopted national agriculture policy, national land use policy, national water policy, and national agricultural extension policy during last decades. The Government took various measures to transform these policies into actions, but in many cases deficiencies were observed in reinforcing the agreed actions and regulations. In recognition of main driver of rural growth, major source of generating rural employment, ongoing private sector led transformation (commercial orientation) in agriculture sector, and intimate link between agricultural growth and rural non-farm economic activities, the Government has identified agriculture and rural development as a topmost development agenda for faster poverty reduction and ensuring food security to the fast growing population of the country. 7. The national poverty reduction strategy (NPRS) 2 identified four areas of focus for agriculture and rural development: (i) intensification of major cereal crops including rice; (ii) diversification of high value non-cereal crops (vegetables, fruits, pulses, and spices); (iii) development of non crop agriculture (fishery and livestock including poultry); and (iv) promotion of rural non-farm activities (rural infrastructure, transport and services). The NPRS emphasized food security, including availability, access and utilization of food. It calls for increased productivity through ensuring inputs supply; agricultural trade liberalization; ensuring national and local level stock of critical food items; assuring low cost food supply including disaster relief; targeted safety nets and food distribution programs; policy support; and food related infrastructure development. Reflecting the strategic focus of the NPRS, the Government approved in 2006 the National Food Policy, to ensure adequate food and food security to the poor and vulnerable.

8. In view of the soaring food prices and limited availability of cereal grains in the international market for import, the Government is placing greater emphasis on enhancing domestic food production, increasing food reserves through both domestic food procurement and imports, improving and widening distribution of staple food items, and improving efficiency in food procurement and distribution system. The Government quickly responded to the food crisis with a number of measures, which include widening and improving safety net programs and ensuring availability of critical inputs like fertilizer, irrigation water and improved seed and credit support for boosting domestic food production for the coming season. The FY2009 national budget is more friendly to farmers and pro-poor oriented and has significantly greater allocation for agriculture, rural development and poverty reduction. 2 Government of Bangladesh. 2005. Unlocking the Potential: National Strategy for Accelerated Poverty Reduction.

Dhaka.

Appendix 9 36

C. ADB Assistance in the Agriculture Sector 9. ADB supported policy reforms and innovative interventions for increasing food grain production, inputs liberalization, agribusiness, diversifying crops, and developing the livestock and fisheries sectors. ADB has also assisted in conserving the environment, creating irrigation systems, fostering small-scale water resource, building flood protection, and ensuring village people’s greater access to markets.

10. Under the country partnership strategy for Bangladesh for 2006–20103, more focused interventions on crop intensification and diversification, agribusiness development, livestock entrepreneurship development, and water resources management are undertaken, aiming to increase farm productivity, enhance income of small and marginal farmers and ultimately benefit the rural poor. All these interventions are impacting positively on improving livelihoods of the project beneficiaries including farmers. As of April 2008, ADB provided 51 concessional loan projects/programs amounting to $1.65 billion for the agriculture and natural resources sector, or 10.4% of the country’s total portfolio. Currently, six loan projects amounting to $205 million are among the ongoing portfolio. In addition, ADB, as a long standing development partner, supported rural infrastructure development in Bangladesh, which contributed significantly to the improvement in rural connectivity that helped marketing of agricultural commodities more efficiently by the farmers. 11. ADB through its recently completed country programming mission confirmed several pipeline investment projects for the agriculture and natural resources sector during 2009–2011, which include (i) crop productivity and value adding support project, (ii) participatory small-scale water resources development project, (iii) second command area development project, (iv) sustainable rural infrastructure development project, and (v) third participatory livestock development project. In addition, ADB will assist the Government with technical assistance grant for institutional capacity building and for project preparation in the agriculture and natural resources sector. D. Food Price Shocks

12. Recent surge in food grain prices (particularly rice and wheat) and food shortage have caused tremendous concern around the world and in particular for the least developed countries, such as, Bangladesh. Bangladesh faced two consecutive devastating floods and a severe cyclone in late 2007, which, among others, caused significant food production losses. These production losses combined with soaring food prices in the international markets aggravated the situation, which contributed adversely to the significant price increase for food grains and other food items in the domestic market. 13. Soaring food prices have hit hard the poor including vulnerable groups, who presently need to spend about 69% of their income on buying staple food. This crisis situation has seriously eroded purchasing power of the poorer section of the population. If the current crisis is not addressed properly and timely, the consequent effects would be continued food insecurity, malnutrition and increased hunger among poorer section of the population, which may jeopardize fight against poverty and slowdown economic growth in the coming years. This prevailing food crisis warrants immediate response from the Government and the development partners.

3 ADB. 2005. Country Strategy and Program (2006–2010): Bangladesh. Manila.

Appendix 9 37

E. Government Response

14. To address soaring food prices and ensuring food security for the population, the Government has taken a number of immediate measures that include: (i) reducing import duty on food grains, (ii) quick and increased food grain import, (iii) undertaking extensive damage recovery and income restoration programs following the 2007 floods and cyclone, (iv) undertaking all out efforts to boost boro rice production, (v) widening and intensifying social safety net programs in various poverty stricken and natural calamity affected areas of the country, and (vi) initiating guaranteed employment program for the vulnerable population. 15. In line with the national agriculture, agriculture extension, and food policies, the Government attaches high importance to increase domestic food production particularly rice by adopting strategy of vertical yield increase and promoting expansion of suitable crops in the marginal and underutilized areas. The Government is exercising more rigorous advance planning reflecting realistic production targets for major crops through bottom-up planning, and inputs requirements, allocating required resources for timely production and procurement of critical inputs, such as, fertilizers, seeds and fuel for irrigation water. Other key measures include (i) allocating more budget for undertaking applied agricultural research particularly developing suitable high yielding crop varieties for unfavorable environments; (ii) initiatives for increasing efficiency and effectiveness of public services providing agencies (Department of Agriculture Extension, Department of Livestock Services, the Directorate of Food, and Forest Department); (iii) undertaking additional investment and technical assistance projects supported by the development partners including ADB to ensure adequate investment, support services, and technology dissemination to the farmers; (iv) building partnership with nongovernment organizations and other private organizations for ensuring need based services to the farmers; and (v) reorienting focuses of the ongoing projects towards addressing food security in the coming years.

Appendix 10 38

LIST OF PERMISSIBLE IMPORTS

No. Description Food grain (rice and wheat)

Source: Asian Development Bank fact-finding mission.

Appendix 11 39

PROCUREMENT PLAN

Project Information Country People’s Republic of Bangladesh Name of Borrower People’s Republic of Bangladesh Project Name Emergency Assistance for Food Security

Project Loan or technical assistance Reference To be determined (tbd) Date of Effectiveness tbd Amount $: $170 million Of which Committed, $ Executing Agency Finance Division, Ministry of Finance Approval Date of Original Procurement Plan Approval of Most Recent Procurement Plan Publication for Local Advertisement Period Covered by this Plan 2008–2009 Procurement Methods to be Used

Modified international bidding National competitive bidding Procedures appropriate to trade “Procedures appropriate to trade” means that goods are procured with due consideration to economy and efficiency, in accordance with public procurement rules and the Borrower’s standard public procedures for emergency procurement, and normal private sector commercial practices acceptable to the Asian Development Bank (ADB).

1. Essential imports financed from the proceeds of ADB loan will be procured in accordance with ADB’s Procurement Guidelines (2007, as amended from time to time). The Project provides for retroactive financing for a maximum 30% of the total amount for eligible imports incurred not earlier than 1 April 2008, provided that the expenditures are in accordance with agreed procedures, are certified by the Finance Division, and the certification is acceptable to ADB. Retroactive financing will be approved under the following conditions: (i) in accordance with agreed procedures, (ii) verified by ADB, (iii) certified by the Finance Division, and (iv) the certification is acceptable to ADB. Provision of retroactive financing does not commit ADB to finance any part of the Project. 2. ADB’s Procurement Guidelines (2007, as amended from time to time) provide special exemptions for emergency assistance which are adopted for this Project. Previously during natural disasters, exporting ADB member countries have sold food supplies to Bangladesh, on terms and conditions that are lower than the normal world trade prices. Therefore, under ADB’s Procurement Guidelines wheat and rice imports may be procured in accordance with the Government’s standard public procedures for emergency procurement and normal private sector commercial practices acceptable to ADB, with due consideration of economy and efficiency.

Appendix 12 40

TECHNICAL ASSISTANCE FOR STRENGTHENING THE GOVERNMENT’S INSTITUTIONAL CAPACITY FOR IMPROVING FOOD SECURITY

A. Objectives

1. The objective of the technical assistance (TA) is to strengthen monitoring of ongoing safety net programs and to improve capacity for planning and undertaking mid and long-term interventions to improve food security.

B. Scope and Outline of Terms of Reference 2. The activities under the Ministry of Food and Disaster Management (MoFDM) will focus on improving institutional capacity of the Ministry to administer, manage, and monitor safety net programs. 3. The activities under the Ministry of Agriculture (MOA) will help develop institutional capacity of its policy, planning, and coordination unit regarding planning of food production, input requirement, and procurement and distribution of inputs. C. Cost Estimates and Financing Plan 4. The cost of the TA is estimated at $660,000. The Asian Development Bank (ADB) will provide $600,000 on a grant basis from ADB’s TA funding program. The component wise cost estimates are provided in table below.

Table 1: Cost Estimates ($’000)

Item Foreign Exchange

Local Currency

Total Cost

A. ADB Financing

1. For MoFDM

a. Consultancy Inputs i. Remuneration and Per Diem for International

Consultant (1 x 6 person-months) 100.0 100.0

ii. International Travel 10.0 10.0 iii. Remuneration and per diem for National

Consultants (3 x 10 person-months) 84.0 84.0

iv. Local Travel 10.0 10.0 b. Equipmenta 5.0 10.0 15.0 c. Training (local) 20.0 20.0 d. Food Stock Monitoring and Computerization 20.0 70.0 90.0 e. Communications, Reports Preparation, Workshops 5.0 5.0 f. Contingencies 10.0 20.0 30.0 Subtotal (A1) 145.0 219.0 364.0 2. For MOA a. Consultancy Inputs i. Remuneration and Per Diem for International

Consultants (1 x 6 person-months) 90.0 90.0

ii. International Travel 10.0 10.0 iii. Remuneration and Per Diem for National

Consultants (2 x 10 person-months) 56.0 56.0

Appendix 12 41

Item Foreign Exchange

Local Currency

Total Cost

iv. Local Travel 10.0 10.0 b. Equipmenta 5.0 10.0 15.0 c. Training (local) 20.0 20.0 d. Communications, Reports Preparation, Workshops 5.0 5.0 e. Contingencies 10.0 20.0 30.0 Subtotal (A2) 115.0 121.0 236.0 Subtotal (A) 260.0 340.0 600.0 B. Government Financing

Counterpart Staff, Office Space, Electricity, and Telecommunications

60.0 60.0

Subtotal (B) 60.0 60.0 Total (A+B) 260.0 400.0 660.0

a Include furniture, office equipment, computers, printers, fax, mobile phones, and software. Source: Staff estimates. D. Implementation Arrangements 5. The TA will be grant assistance for the MoFDM and MOA. The executing agency will be the MoFDM and the coordinating ministry will be the MOA. There will be an inter-ministerial steering committee chaired by secretary, MoFDM to oversee and monitor the activities to be supported by the TA project. The existing inter-ministerial steering committee chaired by secretary, MoFDM on food policy monitoring can oversee these TA activities. MoFDM will appoint a project director and MOA will appoint a project coordinator both at the joint secretary equivalent level. The activities under this TA will be undertaken in close coordination with the EC-USAID-funded and FAO-executed ongoing and planned TA project1 avoiding duplication and ensuring efficient utilization of available resources. The TA will commence on 1 September 2008 and will continue for 10 months. The consultants will be recruited by ADB as individual consultants in accordance with ADB’s Guidelines on the Use of Consultants (2007, as amended from time to time), or other arrangements satisfactory to ADB for recruiting the consultants. The consultants under MoFDM will work in close collaboration and coordination with WFP, and for activities under MOA, the consultants will work in close collaboration and coordination with FAO. The activities under MOA will be linked with the ADB project preparatory technical assistance for designing a complementary crop production and value addition support project under the MOA planned for the 2010. The terms of reference of the consultants are provided below. 6. Agricultural Economist (international) specialized in food procurement, trade and safety net programs (6 person-months). The expert will be a specialist in these areas with minimum 10 years of international (regional) experience having post graduate degree in agricultural economics and will work in close collaboration with the project director. The specialist will work in close coordination with other international and national experts under this TA. He/She will be reporting to both ADB and the Government. The specialist will have following responsibilities.

(i) Advise MoFDM on modern systems of food procurement, storage, and

distribution system.

1 The National Food Policy Capacity Strengthening Programme (NFPCSP).

Appendix 12 42

(ii) Analyze national food procurement, management, distribution, and storage system, and recommend measures for improving the national system.

(iii) Analyze present international procurement system now practiced and suggest more transparent, competitive and efficient method of international procurement for quickly meeting demand as needed.

(iv) Advise and ensure that MoFDM is implementing the recommended measures to improve the national system and to minimize system loss and leakages during procurement, storage, and distribution of food grains.

(v) Enhance MoFDM's capacity on forecasting food demand and supply, and planning for advanced procurement from international and domestic markets.

(vi) Review present safety net programs and suggest more efficient and effective integrating mechanisms to reach really needy vulnerable groups including the indigenous peoples.

(vii) Strengthen MoFDM's capacity on monitoring safety net programs, including implementation of specific anti-corruption and good governance measures.

(viii) Review existing food storage and distribution facilities across the country; recommend measures for computerizing the facilities.

(ix) Support independent monitoring of the safety net programs, and work in close coordination with other development partners, such as, EC, FAO, USAID and WFP.

(x) Assist MoFDM in the planning, scheduling, and direction of all project inputs including consultants to effectively implement the TA.

(xi) Supervise and advise the national consultants. (xii) Keep ADB appraised on the progress of TA particularly on delayed actions

through regular reports. (xiii) Undertake any other duties as may be required by MoFDM and ADB. (xiv) Prepare terms of reference to conduct a performance audit.

7. Food Procurement and Trade Specialist (national, 10 person-months). The consultant will have suitable tertiary qualifications in areas of agricultural/food economics, trade, and resource management. He/she should have wide experience in food procurement and trade, with at least 10 years of work experience preferably in donor-funded development projects. The major tasks of the specialist will be to support the international consultant in undertaking his/her assigned work and undertake other relevant tasks. The specialist will work in close coordination with other experts of the TA, and in close collaboration with the project director. 8. Performance Monitoring Specialist (national, 10 person-months). The consultant will have suitable tertiary qualifications in areas of management, public policy, and governance. He/she should have wide experience in the safety net program, with at least 10 years of work experience in donor-funded development projects. The major tasks of the specialist will be to support, assist international consultant in undertaking assigned works in the area of safety net programs. He/she will closely work with the internal audit unit of the Directorate of Food, MoFDM, undertake regular monitoring/spot checks during the project period for quarterly reporting, and conduct a special performance audit on the safety net programs. The specialist will work in close coordination with other experts of the TA. He/She will work in close collaboration with the project director. 9. Information Technology Specialist (national, 10 person-months). The specialist would have post graduate degree in information technology/computer engineering with 10 years of relevant experience. The major tasks of the specialist will be to establish, operate and monitor computerized food procurement, distribution and monitoring systems under MoFDM, support,

Appendix 12 43

assist international consultant in undertaking assigned works and undertake other relevant tasks, including capacity development training. The specialist will work in close coordination with other experts of the TA. He/She will work in close collaboration with the project director. 10. Agricultural Specialist (international, specialized in crop production, marketing, and trade - 6 person-months). The expert will be a specialist in the above areas with minimum 10 years of international (regional) experience having bachelor and post graduate basic degree in agricultural economics and will work in close collaboration with the project director. The specialist will work in close coordination with other international and national experts under this TA. He/She will be reporting to both ADB and the Government. The specialist will act as chief technical adviser (CTA) and will have following responsibilities.

(i) Analyze present measures for crop production and developing road maps for major cereal crops including rice and other high value crops through extensive stakeholder consultation for ensuring food security and balanced nutrition for the increasing population of the country in the coming years.

(ii) Develop action plans following agreed road maps and integrating into Government’s planning process and ensure availability of adequate fund under the Government budget.

(iii) Help MOA to fix production target for major crops and monitor actions undertaken by the Department of Agricultural Extension.

(iv) Assist MOA to make advance planning for required input (fertilizers, irrigation, water, and quality seeds) as per agreed road map for major crops and take advance action for procurement of inputs particularly fertilizers.

(v) Help MOA and Department of Agricultural Extension to implement the aforesaid action plans.

(vi) Improve data collection, analysis and reporting systems for advance planning and forecasting of food production systems in the country.

11. Agricultural Economist (national, 10 person-months). The specialist will work under the guidance of CTA and the project director. The major tasks will be to support the CTA in undertaking his/her assigned work and undertake other relevant tasks. The specialist will work in close coordination with other experts of the TA. The expert will be a specialist in the area with minimum 10 years of experience having bachelor and post graduate degree in relevant field. He/She will work in close collaboration with the project director. 12. Crop Production Specialist (national, 10 person-months). The specialist will work under the guidance of the CTA and the project director. The major tasks of the specialist will be to support the CTA in undertaking his/her assigned work and undertake other relevant tasks. The specialist will work in close coordination with other experts of the TA. The expert will be a specialist in the area with minimum 10 years of experience having bachelor and post graduate degree in relevant field. He/She will work in close collaboration with the project director. E. Reporting Requirements 13. Upon assumption of the assignment the consultant team will submit to ADB, MoFDM and MOA following three hard copy reports along with an electronic editable copy on CD-ROM.

(i) inception report with detail implementation plan within 3 weeks from commencement;

(ii) monthly progress reports; and (iii) draft final report and final reports within 2 weeks of receiving comments from

ADB and the Government.

Appendix 13 44

SUMMARY POVERTY REDUCTION AND SOCIAL STRATEGY

Country/Project Title: Bangladesh/Emergency Assistance for Food Security Project Lending/Financing Modality: Emergency Project Department/

Division: South Asia Department/ Bangladesh Resident Mission

I. POVERTY ANALYSIS AND STRATEGY

A. Linkages to the National Poverty Reduction Strategy and Country Partnership Strategy Contribution of the sector or subsector to reduce poverty in Bangladesh: Bangladesh being an importer of food grains faced tremendous pressure balancing the domestic need and supply of food in the recent months. The country lost agricultural production due to several consecutive natural disasters like floods and cyclone in 2007. These combined with the food price shocks driven by higher international prices made the country struggle to ensure access to food by all its citizens, especially the poor. Access to enough food for active healthy life is essential to sustain human development and economic growth. Availability, access and utilization of food are determined by domestic production, external trade and efficient distribution. The Government had to face the dual challenge of controlling price and ensuring food security through various safety net programs while domestic food stock was depleting before the boro harvesting season. Ensuring adequate stock of food, timely supply of agricultural inputs, efficiency in distribution etc. have been identified as means to overcome the challenge. ADB in the past has supported several projects in the agriculture and irrigation sectors contributing toward increased agricultural productivity. The ongoing Emergency Disaster Damage Rehabilitation Project contributed toward import of food to support the Government developing its food stock, which are contributing towards food security. The proposed Emergency Assistance for Food Security Project offers to be instrumental in supporting the government in expanding the safety net programs for restoring income and livelihood of the poor and vulnerable affected by the rise in food prices. The proposed Project will make a significant contribution in cutting poverty by ensuring food security of the poor and vulnerable, which is consistent with the national poverty reduction strategy (NPRS). The NPRS emphasized on food security, on the basis of availability-access-utilization of food. It calls for increased productivity through ensuring inputs supply; agricultural trade liberalization; ensuring national and local level stock of critical food items; assuring low cost food supply including disaster relief; targeted safety net and food distribution program; policy support; and food related infrastructure development. Ensuring availability of food at a reasonable cost at the time of need is critical, which is dependent upon availability of stock and smooth distribution mechanism. The Government has taken a multi-pronged approach to face the crisis, which include the above mentioned areas and a proposed guaranteed employment program. The Project will support the Government to import essential food items for stock and distribution through various safety net programs including open market sale, food for work and the proposed guaranteed employment program. B. Poverty Analysis Targeting Classification: Targeted intervention (TI-H) 1. Key Issues What type of poverty analysis is needed? Bangladesh though witnessed a modest poverty reduction since early 1990s, it remains one of the poorest countries of the world with 40% of its population living below the poverty line as of 2005. A major cause of poverty in the country is loss of assets, lives and income due to natural disasters. Since independence in 1971, the country faced many disasters like cyclones, floods and droughts, which particularly increased hardship of the poor. The floods and cyclone of 2007 seriously damaged livelihoods and income of millions of people. The livelihoods and food security of already weakened households were at jeopardy especially for the rural landless, small and marginal farmers and the microfinance beneficiaries. Impact on health was also tremendous causing mostly waterborne disease, including diarrhea and subsequent malnutrition and morbidity. Hungry and grief stricken people resorted to relief and the Government had to initiate and expand several targeted safety net programs and the food stock depleted. To make the matters worse, the food price rose to a level beyond reach of these helpless people. The high food price driven by high international price and internal shortfall due to several disasters drove the low income groups in great food insecurity. Expenditure on food rose to about 69% for about 30% of the poorest, especially on rice cutting expenditure on health and other non-food items. The domestic cost of rice production increased even with subsidized agricultural inputs such as diesel and urea fertilizer. Bottlenecks in distribution and hoarding also aggravated the domestic price situation. Non-availability of food in international markets due to export restrictions imposed by different countries caused severe shortfall in domestic stock situation. The rising food inflation affected household consumption negatively especially for the poor and fixed income households who had to incur high welfare loss. The poor made up the depletion of real income due to inflation mainly through skipping meals or cutting protein consumption, which will have long-term effects on health and nutrition at the household level. These may lead to further sell of assets, resorting to money lenders and rural urban migration. Many of the negative consequences are hidden and cannot be quantified. Women and poor and in some cases children had to seek additional jobs

Appendix 13 45

in informal sector often compelling them to work for long hours. In some cases children had to skip school to queue up to collect rice from the markets. The marginal farmers and share croppers also suffered losses while they had to procure other items at a high price selling their own products. The rise in food price also led to more unequal distribution of income and expenditure as well as pushed the poor to hard core poor category as food takes the greater share of the total expenditure of the poor families. The NPRS and the National Food Policy emphasize on extending the coverage of effective safety net and social protection for poverty reduction. The proposed Project is to support in this area. The Project will provide budgetary support to the Government for import of foods for ensuring priced and non-priced safety net programs for poor and vulnerable. The Government will ensure the access of the poor to food through intensive and extensive targeted safety net programs. The poor of various regions of the country, especially the famine stricken areas, the char lands and other remote areas. will be covered under the specific safety net programs like food for work, vulnerable group development, guaranteed employment program designed for various target groups and during disasters. The TA attached to the Project will support the Government in increasing the effectiveness of the targeted safety net programs. It will also ensure that the indigenous people are covered under such programs. 2. Design Features The project design includes features that will help reduction of poverty directly or indirectly. These are: (i) Financial support to the Government budget to import foods to assist in reducing the fiscal pressure on the budget arising from expanded programs for safety nets. The import of food items will contribute towards sustained food supply through increased stock and distribution through various effective safety net programs. (ii) The Project will help implement the Government’s medium and long-term food security road map as outlined in its National Food Policy and the plan of action for implementation of the National Food Policy through a TA support. The TA will also review the distribution efficiency and coverage of the safety net programs in reaching the poor rural households and will suggest means to improve them. C. Poverty Impact Analysis for Policy-Based Lending

Not applicable

II. SOCIAL ANALYSIS AND STRATEGY

A. Findings of Social Analysis It was observed that the poor were hard hit by the natural disasters (floods and cyclone) and food price hikes. After the initial shock of disasters people wanted employment. Opportunities for wage employment, considered the first priority among the poorest were decreased. Fertilizer, seeds, poultry feed and capital were the needs of the farmers. Poor faced challenge of reduction of employment opportunities coupled with reduction in real wage due to inflation. The poor women lost self-employment opportunities and faced the challenge in managing the household food security and nutritional needs. Production and stock are not indicators of accessibility of food by the vulnerable groups. Employment, income, availability of foods in market, efficient safety net programs, efficiency in distribution, affordability etc. are important issues. Because of the various bottlenecks, access to food was severely hampered. The food price hike not only caused reduction in food consumption but also deteriorated the quality of consumption affecting the nutrition level negatively with possible long-term health impacts. In some cases, school going children had to miss school or day laborers had to skip work hours for collecting food grain from the open market sale system, where they had to be in the queue for long hours.

B. Consultation and Participation

1. Provide a summary of the consultation and participation process during the project preparation. This is an emergency response project and assessment and consultation schedule was drawn jointly with Government and other development partners to ensure participation of relevant stakeholders. The relevant Ministries in the Government were consulted on the basis of the consultation schedules. A participatory process was adopted to identify the needs and components of the Project during the joint ADB-JBIC-World Bank Mission. Simultaneously, ADB identified the areas to be supported under an ADB-financed loan jointly with the Government. Consultation with civil society was done and regular interaction continued with various agencies during the assessment. ADB support for strengthening safety nets for the poor and vulnerable was supported by the stakeholders. The outputs of the mission were: (i) formulation of a project design and components to be supported, (ii) formulation of a list of import items to be supported under the Project, and (iii) estimate of budget support. In addition, mechanisms to ensure benefits of poor and women through improved safety net programs and employment guarantee schemes were discussed, and identified. A TA was proposed to help implement medium and long term food security strategy and road map by the Government and suggest means to improve the distribution efficiency and coverage of the safety net programs in reaching the poor.

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2. What level of consultation and participation (C&P) is envisaged during the project implementation and monitoring? Information sharing Consultation Collaborative decision making Empowerment

3. Was a C&P plan prepared? Yes No If a C&P plan was prepared, describe key features and resources provided to implement the plan (including budget, consultant input, etc.). If no, explain why. In view of the emergency nature of the Project to provide budgetary support to the Government, a full-fledged C& P plan was not prepared. Resources have been provided for a TA to assess the existing safety net programs and recommend measures to improve the effectiveness of the existing programs reaching the poor, women and other vulnerable groups. The civil society including local government institutions will be involved in consultation while implementing the TA. NGOs are involved in delivery and monitoring of some safety net programs and will continue to remain engaged.

C. Gender and Development 1. Key Issues. Strategy to maximize impacts on women: Women are generally the ones to face the challenge of managing households' food security and nutrition needs. During the disasters and food crisis they were the ones hard hit in managing the households' food supply. Female headed households were the worst sufferers. Normally women are the ones to forgo their food and nutrition in favor of other members of the family with severe consequences on their own health. The project will help the Government create stock of essential food items for ensuring household food security during crisis periods. The targeted safety net programs and employment guarantee schemes will be focused on the poor households especially the female headed ones. Since women constitute majority of the poor population, the targeted programs will ensure their access to food. 2. Key Actions. Measures included in the design to promote gender equality and women’s empowerment—access to and use of relevant services, resources, assets, or opportunities and participation in decision-making process:

Gender plan Other actions/measures No action/measure

III. SOCIAL SAFEGUARD ISSUES AND OTHER SOCIAL RISKS

Issue

Significant/Limited/ No Impact

Strategy to Address Issue

Plan or Other Measures Included in Design

Involuntary Resettlement

No Impact The Project does not involve any construction, land acquisition and resettlement. The Project will provide budgetary support to import of foods, therefore, does not trigger resettlement or compensation requirements.

Full Plan Short Plan Resettlement Framework No Action

Indigenous Peoples

Limited There will be no adverse impact on the indigenous peoples. Indigenous peoples of the country will potentially benefit from the open market sales and safety net programs. The Government will be supported to prepare an action program to streamline the distribution channels for food security, where indigenous peoples’ interest will be specifically addressed.

Plan Other Action Indigenous Peoples

Framework No Action

Labor Employment opportunities Labor retrenchment Core labor standards

Limited Additional employment opportunities will be created through the safety net programs like Food for Work, Vulnerable Group Development and guaranteed employment schemes, etc.

Plan Other Action No Action

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Issue

Significant/Limited/ No Impact

Strategy to Address Issue

Plan or Other Measures Included in Design

Affordability Limited The Project will facilitate poor people's access to food through the Government’s safety net programs and steady supply in the market. No significant issue is envisaged.

Action No Action

Other Risks and/or Vulnerabilities

HIV/AIDS Human trafficking Others (natural

calamities and price hike

Limited Any future natural calamities or price hike will adversely affect the people, especially the poor. In such case the Government will take necessary mitigation and support mechanisms.

Plan Other Action No Action

IV. MONITORING AND EVALUATION

Are social indicators included in the design and monitoring framework to facilitate monitoring of social development activities and/or social impacts during project implementation? □ Yes □ No

ADB = Asian Development Bank, HIV/AIDS = human immunodeficiency virus/acquired immune deficiency syndrome, JBIC = Japan Bank for International Cooperation, NGO = nongovernment organization, NPRS = national poverty reduction strategy, TA = technical assistance.