2004 Floods in Bangladesh

Damage and Needs Assessment and Proposed Recovery Program

PART 11 - SECTOR ANNEXES

A Joint Report by The Asian Development Bank

and The World Bank

To the Government of Bangladesh January 5,2005

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Administrator31628 V. 2

CURRENCY EQUIVALENTS Exchange rate effective September 26,2004

Currency Unit = Taka (Tk) 1 Taka = U S Dollar 0.0 16

1 U S Dollar = Taka 59

Acronyms and Abbreviations

ADB ADP AusAID BADC BMDA BMD BRDB BWDB CI DER DflD DPHE

DWASA ECLAC EMOP FA0 FAP FBCCI FFW FFWC FSS FY GDP GOB IDA E O IMF I-PRSP LCG LGED

MDG MFA MFDM NBR N C B NGO NHA OCHA PEDP 11 PFDS

Asian Development Bank Annual Development Plan Australian Agency for International Development Bangladesh Agriculture Development Corporation Barind Multipurpose Development Authority Bangladesh Meteorological Department Bangladesh Rural Development Board Bangladesh Water Development Board Cormgated Iron Disaster Emergency Response UK Department for International Development Department o f Public Health Engineering, Ministry o f Local Govemment, Rural Development and Cooperatives Dhaka Water and Sewerage Authority UN Economic Commission for Latin America and the Caribbean Emergency Operation Food and Agriculture Organization o f the United Nations Flood Action Plan Federation o f Bangladesh Chamber o f Commerce and Industry Food for Work Flood Forecasting and Waming Center Flood Forecasting System Fiscal Year Gross Domestic Product Govemment o f Bangladesh International Development Association International Labor Organization International Monetary Fund Interim Poverty Reduction Strategy Paper Local Consultative Group Local Govemment Engineering Department, Ministry o f Local Govemment, Rural Development and Cooperatives Millennium Development Goals Multi-Fiber Arrangement Ministry o f Food and Disaster Management National Board o f Revenue Nationalized Commercial Bank Non-governmental Organization National Housing Authority UN Office for Coordination o f Humanitarian Affairs Primary Education Development Project I1 Public Food Distribution System

Acronyms and Abbreviations (Cont’d)

PKSF PO PRGF PRSP PWD RHD SME SPARRSO SWAP TA UN UNDP UNESCO UNICEF USAID UZR UR VGF WB WFP

Palli Karma-Sahayak Foundation Partner Organizations Poverty Reduction and Growth Facility Poverty Reduction Strategy Paper Public Works Department, Ministry o f Housing and Public Works Roads and Highways Department, Ministry o f Communications Small and Medium Enterprises Bangladesh Space Research and Remote Sensing Organization Sector Wide Approach Technical Assistance United Nations United Nations Development Programme United Nations Educational and Scientific Organization United Nations Children’s Fund United States Agency for International Development Upazila Roads Union Roads Vulnerable Group Feeding World Bank World Food Program

.. 11

2004 FLOODS IN BANGLADESH DAMAGE AND NEEDS ASSESSMENT AND PROPOSED RECOVERY PROGRAM

PART - SECTOR ANNEXES

Preface

This report presents the preliminary assessment o f damage and needs resulting from the floods that affected Bangladesh from July through September 2004, and the proposed recovery and long- term mitigation program. Part I constitutes the main report, while this volume includes annexes with detailed assessments o f selected sectors.

The report was prepared by a joint team from the Asian Development Bank and the World Bank, in collaboration with the Govemment o f Bangladesh. Team members from the ADB include: Hans Carlsson (Joint Mission Team Leader), Kamal Ahmad, Faruque Ahmed, Shamsuddin Ahmed, Stefan Ekelund, Ki Hee Eye, Zahid Hossain, Nao Ikemoto, Eafiqul Islam, Eezaul Kar im Khan, Jamal Mahmood, S. Motin, Arun Saha, Ferdousi Sultana, and Tomoo Ueeda. Team members from the World Bank include: Mohinder S. Mudahar and Enrique Pantoja (Joint Mission Team Leaders), Nilufar Ahmad, G. M. Khurshid Alam, Mahmudul Alam, Mi tch Asada, Rafael Cortez, Subrata Dhar, Paul Dorosh, Eaihan Elahi, Nuran Ercan, Fabio Galli, Chandra Godavitame, Zahid Hussain, Zahed H. Khan, Kar in Kemper, Qaiser Khan, Khwaja Minnatullah, Jelena Pantelic, Christoph Pusch, Moh i U z Zaman Quazi, S.A.M. Eafiquzzaman, and Zoe Elena Trohanis.

To complete the assessment, the joint team worked closely with GOB and consulted widely with non-governmental organizations, other bilateral and intemational agencies, members o f academia, and the private sector. The team also visited several flood affected districts, including Bogra, Comilla, Gaibandha, Manikganj , Maulvibazar, Munshiganj , Mymensingh, Narayanganj , Sirajganj, Sunamganj, and Sylhet to meet with local authorities and communities and collect damage information.

The assessment team i s grateful to GOB for i t s considerable work to produce the preliminary damage assessments for al l o f the affected sectors, and i ts valuable comments on the draft Report. The team gratefully acknowledges the comprehensive reports prepared by the Disaster Emergency Response (DER) o f the Local Consultative Group (LCG) and other organizations that provided valuable insights, information and data on the impacts o f the floods.

The interim conclusions o f the assessment were discussed with GOB at the end o f September, and the draft report shared in mid November 2004. It should be kept in mind, however, that this i s a preliminary assessment based on the information available at the moment o f completion o f the report. Understanding o f the effects o f the floods can be expected to evolve as more information becomes available.

iii

TABLE OF CONTENTS

PART 11 . SECTOR -XES

ANNEX 1 . MACROECONOMIC IMPACTS ...................................................................................... 1 Short-term Macroeconomic Impact .................................................................................... 1 fiscal implications ............................................................................................................... 4 Economic Growth ........ : ...................................................................................................... 7 Developing an Appropriate Policy Response ................................................................... 10

A. B . C . D.

ANNEX 2 . SOCIAL IMPACTS ....................................................................................................... 11 A . B . C . D .

Food Security: Availability and Prices o f Food ................................................................ 11 Impact o f the 2004 floods on Assets. Employment. and Incomes .................................... 13 Government Response: Food Distribution Programs ....................................................... 14 Special Needs o f Women and Children ............................................................................ 15

ANNEX 3 . RAPID ENVIRONMENTAL IMPACT ASSESSMENT ..................................................... 18 A . B .

Environmental Impacts ..................................................................................................... 18 Needs and Actions ............................................................................................................ 19

ANNEX 4 . HOUSING .................................................................................................................... 20 A . Estimated Housing Damage ............................................................................................. 20 B . Estimated ReconstructionlRecovery Needs.. .................................................................... 22 C . Response to Housing Needs ............................................................................................. 22 D . Recommendations ............................................................................................................. 23

ANNEX 5 . TRANSPORT INFRASTRUCTURE ................................................................................ 25 Damage Assessment ......................................................................................................... 25 Reconstruction and Recovery Needs ................................................................................ 29 Social and Environmental Aspects ................................................................................... 30

A . B . C .

ANNEX 6 . WATER SUPPLY AND SANITATION ............................................................................ 31 Damage Assessment ......................................................................................................... 31

Implementation Arrangements and Coordination ............................................................. 33 Environmental and Social Aspects ................................................................................... 34

A . B . C . D .

Reconstruction And recovery Needs ................................................................................ 33

ANNEX 7 . PRIMARY AND POST-PRIMARY EDUCATION ............................................................ 35 Damage Assessment ......................................................................................................... 35 Reconstruction and Recovery needs ................................................................................. 36 Preparing for better flood r i sk management ..................................................................... 36

A . B. C .

ANNEX 8 . HEALTH AND NUTRITION .......................................................................................... 37 Response to Health Risks due to the Floods ..................................................................... 37 Damage Assessment ......................................................................................................... 37 Preparing for Better Flood Risk Management .................................................................. 38

A . B . C .

iv

ANNEX 9 . WATER RESOURCES MANAGEMENT ........................................................................ 39 Reconstruction And Recovery Needs ............................................................................... 40

A . B .

Damage Assessment ......................................................................................................... 39

ANNEX 10 . URBAN AND MUNICIPAL INFRASTRUCTURE .......................................................... 42 Damage Assessment ......................................................................................................... 42 Reconstruction and Recovery Needs ................................................................................ 42

A . B .

ANNEX 11 . TRADE AND INDUSTRY ............................................................................................ 44 Damage and Output loss Assessment ............................................................................... 44 Recovery Strategy ............................................................................................................ 46

A . B .

ANNEX 12 . AGRICULTURE (CROPS. LMSTOCK. AND FISHER~~ES) ......................................... 48 A . B . C .

Damage and Loss Assessment .......................................................................................... 48 Flood-Related Govemment Programs .............................................................................. 49 Recovery Needs and Strategy ........................................................................................... 50

ANNEX 13 . MICROCREDIT .......................................................................................................... 52 Possible Impact ofthe Floods ........................................................................................... 52 Funding Needs .................................................................................................................. 52 Policy Implications ........................................................................................................... 52

A . B . C .

V

ANNEX 1 - MACROECONOMIC IMPACTS

1.1 In addition to causing invaluable losses o f human lives and physical damage, the 2004 floods might impact efforts to meet some o f the Millennium Development Goals (MDGs). More specifically, total assets and output losses due to the floods i s estimated at around Tk 134 bi l l ion (US$2.3 billion), constituting 4.0 percent of GDP (see Table 1.1). While flooding significantly affected assets and outputs, the extent o f the former i s much larger than that o f the latter (damage to assets was almost 1.5 times as large as output losses), The private sector suffered almost al l o f the output losses, with agriculture accounting for nearly half o f the total losses, and 57 percent o f total asset losses. Housing, transport infrastructure, and agriculture suffered the most damage.

Table 1.1: Preliminary Estimates of Asset and Output Loss due to the 2004 Floods (Tk in million)

Housing

Transport Infrastructure

BWDB’s FCDf i Schemes

Water Supply and Sanitation

Dhaka W A S A

Urban Municipalities

Primary Schools

Post-Primary (Sec. schools and colleges)

Health

Agriculture, Livestock & Fisheries

Industry

Wholesale & Retail Trade

Power

Others (small losses from several agencies)

Total in Tk Million

Total in US$ Million

Percent of (FY04) GDP

Asset Loss 1 Output Loss I

27,500 i i

20,000 1 11,500 1

4,000 i 900 . I 1,400

3,100

2,400

1,800

400

1 1,800

4,000 ’

1,600

900

79,800

26,600

5,600

1 1,000

I 54,700 1,350 1 930 2.4 I I 1.6

i

Total 27,500

3 1,500

4,000

900

1,400

3,100

2,400

1,800

400

38,400

9,600

1 1,000

1,600

900

134,500

2,280

4.0

YO of Total 20.4

23.4

3.0

0.7

1 .o 2.3

1.8

1.3

0.3

28.6

7.1

8.2

1.2

0.7

100

Sources: Based on GOB data & Asian Development Bank I World Bank Staff estimates. Notes: Table includes public and private sector losses; the nominal exchange rate i s Tk 59 per U S dollar.

A. SHORT-TERM MACROECONOMIC IMPACT

1.2 T h i s section focuses on the short-term (2004105) macroeconomic impact o f the floods on Bangladesh’s economy, particularly on the balance o f payments, the central government budget, economic growth, inflation, and food security. Table 1.2 summarizes the impact on key economic indicators.

1

Table 1.2: Impact of Floods on Key Economic Indicators

GDP Growth ( percent) Agriculture ( percent) Manufacturing ( percent) CPI Inflation Balance of Payments Exports

FY02 1 FY03 I FY04 I FYO5 4.4 i 5.3 i 5.5 / 5.5 / 5.2 .01 1 3.1 2.7 I 3.3 1 3.0

' 1 I I Pre-Flood , PostFlood

5.5 1 6.8 I 7.4 1 6.2 1 5.3 2.8 , 4.4 I 5.8 1 5.5 I 7.5 $ in billions 5.9 1 6.5 1 7.6 I 7.9 1 8.4

(Annual percent change)

(Annual percent change) Gross official reserves Reserves in months o f imports

Imports ! 12.0 I 11.3 I 15.0 1 3.2 / 2.9

-7.6 1 9.5 1 16.1 I 5.1 7.7 i 9.7 10.9 I 11.1 -8.7 1 13.0 12.5 I 10.0 1.6 . 1 2.5 1 2.7 1 3.0 2.1 , 2.9 I 2.7 j 3.0

~

Central government operations Total Revenue Total Expenditure

Domestic financing Overall budget deficit

Money and credit Broad money Private sector credit

1.3 The balance of payments position may worsen somewhat on account of the floods. Export growth reached 16.1 percent in FY04, which was stronger than expected as compared to 9.5 percent in FY03. Growth was driven by the ready-made garment (RMG) and frozen food industries. Import growth was also buoyant, mainly reflecting increases in inputs required by the garment sector. Combined with continued strong remittances, the extemal current account balance had a surplus equivalent to 0.1 percent o f GDP in FY04, compared to 0.6 percent surplus in FY03. FY05 started with improved current, account surplus amounting to US$200 mil l ion in July 2004, compared to US$158 mil l ion in July 2003. This reflected 28 percent growth in exports and nearly 11 percent growth in remittances, which swamped 19 percent growth in imports. However, for the year as a whole before the flood, the current account was projected to have a deficit equivalent to 0.9 percent o f GDP, as a slowdown in export growth was expected with the W A phase-out. The flood i s l ikely to exacerbate this slowdown.

Percent of GDP

14.9 i 13.7 ' 13.3 15.5 ! 15.4 2.6 I 1.3 , 2.1 , 1.9 , 2.4 End of year, percent Change 13.1 15.6 1 13.4 j 12.6 1 14.0 13.9 12.6 1 12.0 * 13.3 1 13.8

10.2 , 10.3 1 10.1 1 11.1 1 10.7 4.7 3.4 1 3.2 1 4.3 i 4.7

1.4 A reduced export growth rate and additional flood-induced imports could result in a widening o f the current account deficit to 1.1 percent o f GDP in FY05, even after taking into account increases in remittances' and current official grants in response to the UN Flash Appeal. Assuming an unchanged pre-flood foreign exchange reserve target o f US$3 bi l l ion by end-June FY05, the extemal financing gap could be in the order o f US$SOO mill ion. If not met by additional assistance, this would create pressure on reserves. Fortunately, unlike in 1998, this year Bangladesh has in place a floating exchange rate regime which will absorb the pressure on reserves. At the end o f June in 1998, Bangladesh's gross reserves were US$1.8 bil l ion (equivalent to 2.8 months o f imports), whereas now gross reserves are US$3.1 bi l l ion (equivalent to 3.7 months o f imports). The Government i s committed to this regime and should continue to confine i t s interventions to countering disorderly conditions and building reserves to desired levels.

Remittances during July-August 2004 had 15.7 percent growth relative to the corresponding period ofthe previous year.

2

1.5 I m p o r t levels are projected to increase, although the impact of the floods on import demand cannot be easily estimated. On the one hand, post-flood relief and rehabilitation i s l ikely to require the import o f selected products, particularly construction materials (CI sheets, cement, and steel) for making repairs to road links, rehabilitating damaged embankments and repairing schools, and health and sanitation facilities. Aided food imports are also l ikely to be higher than they otherwise would have been in the absence o f floods. On the other hand, a fall in real income and import-intensive exports has a depressing effect on import demand. Historically, however, import growth in dollar terms has tended to increase in the aftermath o f floods, both in 1987188 and 1998. Import growth in FY05 was projected to decline to 10.0 percent, compared to the 13.6 percent achieved in FY04, because o f a decline in export growth. Given current trends, this figure i s likely to be higher at about 15.0 percent.

Box 1: Impact of the Flood on External Sector Indicators Floods temporarily reduce export growth, increase imports, remittances and foreign assistance.

Chart 1.1: Export growth (%) I 1-Annual QfOwth -$year moving average g m ~ ( h

Chart 1.3: RMG Export growth FY90-04

I

40

20

0

-7a -Annual gmWm -&year moving average growth

Chart 1.5: Remittance growth (%)

Chart 1.2: RMG Export growth FY81-89

200 100 h d 0

Chart 1.4: Import growth

50 .

-Annual growth -5-year moving average growth

Chart 1.6: Foreign Assistance growth (%)

3

1.6 Export performance i s likely to be affected, but not as much as after the 1998 floods. Export growth in July 2004 relative to July 2003 was 28 percent, driven by 27.4 percent growth in export volume (Box 1). Knitwear exports +creased by nearly 48 percent and woven garment exports by almost 18 percent. Frozen food exports declined by 0.6 percent. Exports to United States markets increased by 27 percent and to the European Union (EU) by 28 percent. The floods clearly did not affect July exports. However, production in many o f the RMG units in Dhaka and Narayanganj were disrupted by the floods for 3 to 4 weeks. The fisheries and shrimp sectors also suffered. A number o f export-oriented units suffered indirectly because their workers were unable to come to the factories andor because supply o f raw materials was disrupted.

1.7 While export growth has tended to decline in the flood year, it has historically bounced back the year after. Export growth in FY99 declined to 3.5 percent, compared to 17.7 percent in FY98 since the 1998 floods made both the production and shipment o f goods extremely difficult in FY99. A large number o f garment and knitwear factories were under water for over 8 weeks on average, Most road and rai l links were cut-off, including the critical Dhaka-Chittagong route, making the shipment o f goods difficult and expensive, Some export orders were affected due to buyers’ loss o f confidence in the ability o f the exporters to meet delivery schedules.

1.8 The above adversities seemed to have been o f a smaller scale during the 2004 floods. Because o f the shorter duration and smaller extent o f flooding, the export-oriented manufacturing sector was not affected as much in 2004 as it was in 1998. The garment sector i s more resilient now and can be expected to make up for the production time lost during July 2004, as it has done in previous years when the sector was adversely affected by hartah (strikes) and political agitation. Export growth was projected to decline from the 16.1 percent achieved in FY04 to 5.1 percent in FY05 because o f the MFA phase out. Recent trends have been more positive than expected, however, and overall export growth could reach at least 12.0 percent this fiscal year.

B. FISCAL IMPLICATIONS

The Budget

1.9 The relief effort, expansion in food-assisted safety nets, repairs to public property and the impact o f the floods on economic growth are l ikely to put pressure on both the revenue and expenditure sides o f the budget. The overall budget deficit can be expected to rise from 3.2 percent o f GDP in FY04 to 4.7 percent in FY05, overshooting the original FY05 target o f 4.3 percent o f GDP. As a result, a financing gap i s l ikely to emerge, given the ambitious external financing target in the FY05 budget. A redeeming feature o f the fiscal situation i s that the FY05 budget already has an ostensible pro-agriculture, pro-poor stance. Increased budgetary allocations towards supporting agriculture and rural development and expanding the targeted poverty alleviation programs are already in place. Full and effective utilization o f these funds can go a long way towards the rehabilitation o f the rural economy and restoring the livelihoods o f the flood-affected poor.

1.10 The experience o f both the 1988 and 1998 floods show that current expenditures tend to rise significantly in the flood year, but then growth declines in the succeeding year (Box 2). There i s some probability that the revenue ,expenditures would overshoot the overall target despite the allocations that exist in FY05 Revenue Budget and the FY05 Food Account. These include the Tk 6 bil l ion provided for farm subsidies, Tk 12 bi l l ion for Unforeseen Expenditure Management, Tk 4.6 bi l l ion for “Others” Block Allocations, Tk 2 bi l l ion for the Micro Entrepreneur Development Fund, and an additional Tk 4 bi l l ion allocated for a food-based safety net program in the food budget.

4

Box 2: Impact of the Flood on Fiscal Indicators Tax revenues are adversely affected by floods and both recurrent and ADP expenditures get a boost.

Chart 2.1: Tax revenue growth

--

-Annual growth -&year moving average

Chart 2.3: ADP growth (%)

I 30

20

10

0

-10

-20

Chart 2.2: Revenue expenditure growth

-Annual growth -5-yr moving average Ir.

Chart 2.4 Growth in credit to Central Govt

loo I

-Annual growth -5-yr moving eveage I I -Annual gmwth -5-y moving average

1.1 1 The Government, however, i s committed to meet pre-existing, competing demands, including subsidies to electricity consumption in irrigation and agriculture-related activities, increased cash incentives (from 25 to 30 percent) for export o f agricultural products (especially fruits and vegetables), expansion in programs for the socially disadvantaged, expanded microcredit programs through Government departments and the Palli Karma-Sahayak Foundation (PKSF), Pay Commission awards, and the retraining and creation o f employment opportunities for voluntarily-retired state owned enterprise (SOE) employees and unemployed garment workers.

1.12 The floods created additional, urgent demands. The Government will have to help the flood-affected farmers commence production. The most immediate need was to re-plant rice for the winter crops under the Transplanted aman rice cultivation program. The farmers needed seeds, fertilizer, farm machines and fuel. Farmers may also use STWIDTW-based irrigation wate? for the winter crops. In addition to providing 5 kg seed o f aman rice and 25 kg fertilizers each to 1.9 mil l ion marginal farmers, the Government needs to ensure adequate supplies o f seeds o f maize, pulses, wheat, vegetables and bovo so that these are available to the farmers in time.

1.13 Another area where the farmers need assistance i s with the health o f their cattle. Thousands o f cattle have already died, which might create a draught power crisis in the coming season, The surviving ones in the affected areas are l ikely to suffer from malnutrition and disease.

STW shallow tubewell; DTW deep tubewell.

5

The Govemment needed to provide essential veterinary medicines and vaccines to the seriously affected areas. The FY05 target for food distribution through the Public Food Distribution System (PFDS) i s 1.3 mill ion mt. This will be revised upwards to take into account the additional food distributed as flood relief. Other costs l ikely to increase current expenditures include the need to provide assistance to the manufacturing sector for rehabilitation; grants to dislocated people; and other increased operations and maintenance (O&M) expenditures to repair infrastructure damage.

1.14 The Government would redirect expenditures from the Annual Development Program (ADP) towards the repair of damaged infrastructure. Actual ADP implementation i s usually wel l below the budgeted ADP. Floods tend to reduce the ADP shortfall by augmenting demand for fast disbursing expenditures. Considering t h i s and assuming that the Govemment would be able to achieve significant reallocation o f ADP funds to finance non-food imports and pay for repairing damages to public assets, it seems reasonable to assume that the actual ADP expenditures can st i l l be contained within the FY05 budget target Tk 220 billion. Implementation shortfall o f the ADP i s normally about 10-15 percent relative to the original budget target, but this tends to improve in flood years. ADP utilization was almost 100 percent o f the original budget target in both FY89 and FY90. In FY99, ADP implementation shortfall dropped to 8 percent relative to the original budget target, compared with 14 percent the previous year. Th is year the funds that can possibly be reallocated are potentially sizeable. The Govemment has indicated willingness to reallocate 10 percent o f ADP for post-flood rehabilitation and reconstruction activities. As a result, i t i s therefore reasonable to assume that the ADP implementation shortfall could decline to less than 10 percent.

1.15 The flood i s also likely to have an adverse impact on revenue collections. The FY05 budget revenue targets are ambitious. The revenue-GDP ratio i s projected to increase from 10.5 percent in FY04 to 11 percent in FY05, implying a revenue growth o f about 20 percent relative to the FY04 revenue outturn. The largest increase i s assumed to be from taxes, which are projected to grow by nearly 23 percent relative to the actual FY04 tax collection estimate. While this i s not unprecedented, achieving it would require diligent implementation o f the strategy adopted for the expansion o f tax base, simplification and rationalization o f the tax system, increased transparency and efficiency in revenue administration, creation o f a Central Intelligence Cell in the National Board o f Revenue (NBR), decentralization o f revenue administration, reduction o f the discretionary powers o f tax officials, increase in manpower o f the revenue collection authorities, and efficient application o f information technology for strengthening monitoring activities and preventing tax evasion. Historically, in both 1988 and 1998, growth in revenue collections declined in both the flood year and the subsequent one. Thus the challenge o f achieving the FY05 budget revenue target has become al l the more formidable with the shrinking o f the tax base resulting from lower than expected growth because o f the floods. In the absence o f new measures to broaden the tax base, strengthen the incentive for compliance and plug leakage, i t will be difficult for the Government to even come close to achieving the revenue targets.

Money and Credit

1.16 Monetary accommodation may need to continue. Monetary policy stance started to become somewhat accommodative toward erid June 2004. However, for the year as a whole, monetary growth declined from 15.6 percent in FY03 to 13.4 percent in FY04. Private sector credit grew by 13.3 percent in FY04, driven mostly by lending o f private banks.3 Monetary growth was targeted to decline further to 12.6 percent in FY05 under the monetary program

Lending from nationalized commercial banks (NCBs) was restrained according to the memoranda o f understanding (MOU) with the individual banks.

6

agreed as part o f the Fund’s Poverty Reduction and Growth Facility (PRGF). Th is figure required adjustment to accommodate the rise in private sector credit needs. The Government has already taken steps for increased credit disbursement towards agricultural rehabilitation. The Finance Ministry has issued guidelines for Bangladesh Bank, the three NCBs, and two specialized banks to disburse new credit and suspend realization o f farm loans in the flood-affected areas for a year, including rescheduling all outstanding loans and relaxing rules for down-payment by the defaulters. The NCBs, specialized banks and state-run non-bank financial institutions increased their agricultural loan disbursement target for the fiscal year by 25 percent.

1.17 A moderate expansionary stance in monetary management may thus be desirable for the sake o f economic recovery if the increased disbursements were to meet the genuine short-run working capital needs and if the credit was paid back in time. Given the need to ensure adequate credit for agriculture in the aftermath o f the flood, a modest increase in the FY05 targets for private sector credit from 13.4 percent to 15.0 percent, and broad money growth from 12.6 percent to 14.0 percent should be considered. At the same

Impact of Flood on Private Sector Credit Growth

70 60 I

I -Annual growth -5-yr moving average fime, the authorities need to maintain caution to make sure that the suspension o f loan recoveries i s strictly contained. Given that, a modest upward revision o f the net lending limit by each N C B from the current 5 percent to 8 percent, in line with the upward revision in private sector credit growth target, could be considered.

C. ECONOMIC GROWTH

1.18 Although the floods caused enormous suffering, impoverishment, and extensive damage to real assets in the public and private sectors, i t s impact on economic growth i s not l ikely to be dramatically large, provided that the economic recovery effort i s wel l managed and additional shocks do not occur in the next few months. Assumptions on the likely growth in the 15 national accounts sectors are based on past flood experience and recent growth trends (Box 1.3). The overall GDP growth for FY05 i s projected at 5.2 percent, lowered than the pre-flood projection o f 5.5 percent and the Government target o f 6 percent. The overall growth impact does not reflect the proportional impact o f the floods on the poor. While farmers can replant crops and businesses can recoup losses by working extra shifts, those earning their livelihoods on a daily basis, such as day laborers, are the worst affected by the disruption in economic activities.

1.19 The immediate, most visible impact of the floods i s the direct and indirect effects on the economy’s output. Output losses in agriculture and industry and disruption in the provision o f services during the floods directly affect growth. The indirect effects arise from the damage caused to the stock o f capital, infrastructure assets, raw and intermediate materials and erosion and sedimentation o f land. In general, the magnitude o f losses depends on the extent o f flooding, i t s duration, and water levels during the floods. The impact o f these losses on growth depends on the timing o f the floods, the recession o f water, and the pace o f reconstruction and rehabilitation o f infrastructure, as well as overall economic management, In comparison to the flood o f 1998 and 1987188, the floods in 2004 have been less severe in terms of the extent o f area inundated, duration o f flood, and persons affected, but more severe in terms o f damage caused to areas adjacent to major rivers. Preliminary estimates indicate that direct output losses due to floods in 2004 may have been about 1.5 percent o f GDP, almost entirely in the private sector, Losses to

7

assets may have been in the order o f 2.3 percent o f GDP, o f which 43 percent i s in the public sector on account o f damage to infrastructure.

Box 1.3: Impact of the Flood on Overall and Sectoral Growth Rates

]-A& growth -$yea mwim averagegrowth

Chart 3.1: GDP growth

I

+0' +B" 60' ++ +@ .@ #at -Annual gmMh -5-9 moving average

growth (%)

I

Chart 3.5: Transport & communication I

I ' 0 1 I

O l ....................... 1 $4 +"" *.81 e"" *493 e"" e@ +d"

-Annual growth -.%year moving average gnrnnh

manufacturing growth (%)

cc"' *& *

and 30. If the availability and distribution o f seeds, fertilizer and credit i s managed satisfactorily, there i s a possibility of partly (if not completely) recovering the damage to crop sector growth caused by the floods. After the 1998 floods, crop growth in FY99 was higher than in FY98. Damage to poultry and livestock were about the same this year as in FY98. Growth in this sector in FY99 was about the same as in FY98. Pond fisheries were severely affected, causing losses at the individual level, but not necessarily to the economy. The fish have been released to open water where they will breed and grow. Due to the vast flooded area available as habitat, the actual fish catch may increase after the recession o f flood water.

1.2 1 According to the Board o f Investment (BOI), damage to industry this year has not been as severe as in 1998. Knit industries in Narayanganj and Narsingdi and small industries (handlooms) in Sirajgong have been affected. Small scale manufacturing growth i s likely to be hit harder than the large scale manufacturing sector, as took place both during the 1998 and 1987188 floods. In 1998, over 5,000 small, medium and large industries were inundated by 4 to 6 feet o f water for about 8-10 weeks. Rapid submersion o f smaller scale units located in rural and semi-urban areas resulted in closures, damage to machinery, and production losses.

1.22 The road network was badly affected in 2004, but unlike during the 1998 floods, neither the Dhaka-Chittagong road link nor the rai l link was disrupted. Thus, the overall impact on the transportation sector should not be too negative, The reconstruction effort could provide a boon to construction, but all o f i t may not necessarily take place this fiscal year. Floods reportedly slowed activities in commercial banks, but this will change when rehabilitation activities start in the rural areas. Wholesale and retail trade may have been disrupted, but not for a long period. Loss in growth on account o f disruption during the floods should at least be partially recovered due to increased reconstruction and rehabilitation-related trading activities.

Inflation

1.23 Floods have tended to be inflationary in the past, and one similar jump in inflation was expected in 2004, particularly in food prices? Although July inflation was not affected by the floods, by October inflation had reached a six- year high o f 7.9 percent, reflecting an increase in food inflation o f 10.5 ~ e r c e n t . ~ This i s a pattern similar to the aftermath o f the 1998 floods. Specifically, the year-on-year inflation in June 1998 was 6.8 percent. Inflation decreased slightly to 6.7 percent in July, jumping to 7.8 percent in August and peaking at 8.4 percent in

Impact of Flood on Inflation

A I

El I -Annual inflation rate -5-yr moving average September. As i s the case in 2004, these increases were driven mostly by food price inflation, which was already on the high side before the onset o f the floods. Containing further food price increases should be one o f the immediate policy goals.

1.24 Before the floods, the inflation rate, which has been on the rise during last three years, appeared to be stabilizing. When the floods started, the year-on-year inflation rate (July 2004 over July 2003) was 5.6 percent, same as in M a y and June 2004, although higher than the 5.1 percent

Annual inflation was about 3 percentage point higher than its long run trend rate (5-year moving average) in both FY88 and FY89. Comparatively, inflation was 6.2 percent - and food inflation 7.1 percent - in October 2003.

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year-on-year inflation rate in July 2003. Food inflation rate in July 2004 was 6.5 percent, compared with 6.6 percent in May-June 2004 and 5.9 percent in July 2003. Nonfood inflation was stable: i t was 4.4 percent in July 2004, compared with 4.4 and 4.3 percent respectively in May and June 2004 and 4.1 percent in July 2003

D. DEVELOPING AN APPROPRIATE POLICY RTiSPONSE

1.25 The near-term economic prospects o f Bangladesh have suffered a setback due to the floods. Growth prospects have been shadowed by the impact o f the devastating monsoon floods. In addition, the multi fiber arrangement (MFA) phase out at the end o f 2004 and higher o i l prices represent significant risks for growth and inflation. Business confidence i s also weakened by renewed security concerns and increased political confrontations between the major political parties. Given these adversities, the Govemment’s immediate policy response should focus on mitigating the sufferings o f the flood-affected poor and helping them recoup losses incurred. It should also try to enable the garment industry to better prepare for the post-MFA era by removing policy distortions, such as restricting the import o f yam through the Benapole border.

1.26 The Government would need to revise the medium-term macroeconomic framework to incorporate the impact o f floods and the persistence o f higher o i l prices, Fortunately, the impact o f these shocks are most l ikely to be temporary, implying that the medium and long-term strategy for poverty reducing growth does not need to change from what has been envisaged in the structural and policy reform program agreed under the Fund’s PRGF and the Bank’s Development Support Credits. Thus, the medium-term fiscal strategy should remain centered on stronger revenue mobilization and reorientation o f expenditures to better support growth and the goals o f the interim Poverty Reduction Strategy Paper (I-PRSP), while maintaining fiscal sustainability. A cautious monetary policy i s necessary to balance support for coping with the floods while containing inflation. Interventions in the foreign exchange markets need to remain confined to countering disorderly conditions and building reserves to a more comfortable level, Further liberalization o f the foreign trade and investment regime remain a high priority. Implementation o f structural reforms to improve the performance o f SOEs, NCBs, tax administration and to address infrastructure bottlenecks to growth and poverty reduction must be more vigorously pursued. Finally, concerted actions to develop an anti-corruption strategy and improve the law and order situation remain top priorities.

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ANNEX 2 - SOCIAL IMPACTS

2.1 Though floods may affect both poor and non-poor households, poor households are generally least able to withstand the negative impacts o f floods on prices o f food and other essentials, household income, individual health and nutritional outcomes. T h i s Annex covers the impacts o f the 2004 floods on several key aspects o f social and individual welfare, including food prices and food security, household income and wealth losses, household coping strategies, and special concerns related to women and children.

A. FOOD SECURITY: AVAILABILITY AND PRICES OF FOOD

2.2 The recent floods in Bangladesh have caused less damage to rice production than the 1998 floods, private sector imports are helping to stabilize prices, and government stocks are sufficient for planned distribution.6 Availability o f food (either in terms o f total availability or government stocks) i s not currently a constraint on food security. Instead, access to food for poor households, particularly severely flood-affected households, may be constrained due to lost production opportunities, loss of assets, and lack o f employment, which limits their purchasing power.

2.3 In spite o f severe damage to selected areas, the total rice crop production loss associated with 2004 floods appears to be relatively small - on the order o f perhaps 1 mil l ion tons: equal to about 4 percent o f total production in 2003104 o f 26.4 mil l ion tons. By comparison, the 1998 floods resulted in a 2.2 mil l ion ton reduction (relative to original targets) to the aus and aman crops.’ (See Annex Table 2.1.)

2.4 The aus rice crop, typically planted in MarchfApril and harvested in JulylAugust9 suffered the greatest damage - 400 thousand tons (a 20-25 percent production loss compared to 2003104 production o f 1.832 mil l ion tons), Damage to the monsoon season aman rice crop i s estimated at about 400 thousand tons o f broadcast (generally deepwater) aman, with perhaps a 100 thousand ton loss in aman production due to reduced yields in some areas. The boro rice crop (planted in DecemberlJanuary and harvested in May1June) i s l ikely to be somewhat greater than the 2003104 harvest, however, due to , increased soil fertility resulting from sediment deposited from the 2004 floods.” These rice production losses to the aman and aus rice crops were particularly severe in the northeast o f Bangladesh, and along major rivers.

2.5 Government stocks are sufficient for planned distribution. Due mainly to large-scale procurement o f the boro rice crop in M a y and June o f 2004 (490 thousand tons in these months),

This analysis i s based on data available in mid-September 2004. Loss estimates o f the Ministry o f Agriculture as o f September 14,2004 were: aus 394 thousand tons, broadcast aman 335 thousand tons and transplanted aman 94 thousand tons, totaling 823 thousand tons. Th is larger 1 million ton estimate allows for additional damage caused by heavy rains during the week o f September 12, 2004 and regional flooding in the Jessore area in mid-September, It should be noted that the Ministry o f Agriculture estimates are subject to reyision. The flood damage to the aus and aman crop was equal in 1998199 was 11 percent o f the original 1998199 target rice production o f 19.2 mill ion tons Crop planting and harvesting times vary somewhat across Bangladesh. The months indicated in this paragraph are indicative o f the major months o f planting and harvest.

'%ate, however, that though there was a substantial jump in boro production following the 1988 and 1998 floods, a part o f this effect may have been due to increased market prices in these years and extensive losses of the aman crop. Given that market prices are not substantially increased.and at flood damage was more restricted in 2004 than in 1988 and 1998, the increase in boro production may not be as large as in these latter years.

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gross stocks at the end of the 2003-04 fiscal year (end-June 2004) were 839 thousand tons (net stocks were about 100 thousand tons less). Given the additional 213 thousand tons o f rice procured from the boro and aus crops in July and August 2004, stocks at the end o f August 2004 were even higher: 942 thousand tons (about 842 thousand tons net). These stocks are more than sufficient to cover planned distribution from September through March (less than 700 thousand tons), even without food aid inflows expected at about 448 thousand tons over this period, Taking into account the timing o f expected food aid inflows, other procurement, and distribution, the end-month stocks are expected to vary between about 580 thousand and 1.1 mil l ion tons between September 2004 and June 2005.

2.6 Private Imports. Following the 1998 floods, more than 2 mil l ion tons o f private imports o f rice (almost exclusively from India) supplied domestic markets and stabilized market prices. Changes in Bangladesh wheat production, and prices o f grain in India and in the broader world market have led to a shift in market incentives, but private sector imports, now mainly o f wheat, are again a major source o f domestic supply and price stability.

2.7 In 2003104, the private sector imported 797 thousand tons o f rice and 1.684 mil l ion tons o f wheat, mainly from India. Most o f this rice trade occurred from July 2003 through March 2004; from April through August 2004, only about 82 thousand tons o f rice have been imported (an average o f 16 thousand tons per month compared with 84 thousand tons per month). Given the bumper boro crop and relatively small production losses associated with the flood, domestic prices o f rice remain relatively l ow (14.1 Twkg national average wholesale, DG Food, 19 September 2004), and there i s little incentive for larger scale private sector imports as o f mid- September. A seasonal price rise i s to be expected, however, and prices could increase to import parity levels, providing incentives for larger scale private imports of rice."

2.8 Private sector wheat imports are currently several times larger than are rice imports, due to lower domestic production, increased domestic food and feed demand, and relative price changes, Wheat production in Bangladesh has declined steadily in recent years, from 1.67 mil l ion tons in 2000101 to only 1.25 mil l ion tons in 2003104 as maize production (mainly destined for the growing poultry feed indus!xy) has increased. Meanwhile, wheat demand, both for food and for animal feed (again, mainly poultry), has increased. India's pricing policies have played a major role, as well, as export subsidies to private traders exporting Food Corporation of India excess stocks have encouraged exports. Private sector wheat imports have averaged 142 thousand tons per month from April through August 2004, (80 percent o f which came across land borders with India), These wheat imports can be expected at approximately these levels barring trade restrictions or shifts in intemational prices. Government policy has implicit ly promoted this trade through only minimal tari f fs on rice and wheat imports. Maintaining these incentives for private sector imports i s crucial to ensuring adequate availability and keeping market prices stable.

2.9 Rice and wheat prices in markets across Bangladesh have generally been stable since the floods began - consistent with the relatively small size o f the flood-related estimated aus and aman rice production shortfall and with continuing large-scale private sector grain imports. Rice prices in some markets rose slightly at the height o f the floods due to transport and other disruptions, but returned to approximate pre-flood levels thereafter. Overall, the wholesale national average price o f coarse rice rose only marginally (3.6 percent) from 12.62 Tk/kg in June (at the time o f the boro harvest) to 13.07 Tk/kg. Note that in real terms (adjusted for inflation

" In 1998-99 private sector imports o f r ice from India averaged over 200 thousand tons o f rice, and stabilized domestic rice prices at about 14.5 M g (wholesale, Dhaka).

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using the non-food consumer price index) i s about 30 percent lower than the September 1998 real price o f coarse rice in 1998-99 (14.2 Tkkg in 1998 prices; 18.1 Tklkg in 2004 prices).

3. IMPACT OF THE 2004 FLOODS ON ASSETS, EMPLOYMENT, AND INCOMES

2.10 Even with adequate availability o f rice and wheat in markets at approximately the same prices as before the floods, household food security and overall welfare i s threatened by losses o f assets, employment and other incomes. These problems can be especially acute for poor households, particularly those living in char areas.

2.1 1 Poverty in Bangladesh i s concentrated in rural areas: according to the Bangladesh Bureau o f Statistics, 53 percent o f rural households are poor (compared to 37 percent o f urban households) and 85 percent o f the country’s poor l ive in rural areas. The sample size and sampling frame do not permit statistically valid information at the District level, so it i s not possible to assess average incomes o f households in flood-affected districts.

2.12 In rural areas, households living in the Sylhet basin howar areas o f northeast Bangladesh and near major rivers suffered from the longest, and generally the most severe floods. Within these areas, landless laborers and small farmers who lost crops were l ikely the most affected. Although average agricultural crop and livestock losses for the year are l ikely to have been small, individual losses were much larger. Data from a sample survey following the 1998 flood indicated production losses (including all crops) for households that cultivated crops averaged 7,500 Tkhousehold, about 48 percent o f expected production. Moreover, total asset loss among the 55 percent o f rural households in flood-affected areas in 1998 that lost assets averaged 6,900 Tkhousehold, 16 percent of average household assets. Given that the onset o f floods in 2004 was reportedly more rapid than in 1998, loss o f assets per flood-affected household may have been greater, though the number o f flood-affected households may be less.

2,13 Coping strategies to rescue assets. People living in the flood-prone areas, especially the chars, have a coping strategy for saving their assets and themselves during floods. Over the years, they have learned how to identify precursors to floods - dark clouds in the north signaling impending heavy monsoon rains and increasing currents in the rivers. Within the household, men, women, boys and girls each have responsibilities for saving assets. Landless, poor families usually do not have many assets and build their houses with flexible materials (bamboo, grass, straw, mud), so that when they see water i s rising they are able to dismantle their houses, take their children and livestock, and move upland. Men have the responsibility o f dismantling and moving the house materials, while adolescent boys and girls rescue livestock and poultry. Women typically keep a packet ready in the machang (a bamboo platform in the room for storage) with a potable cooking stove, matches, clothes, and food, and usually leave higher grounds with the packet, food, and children. Some households move to embankments and highways, and construct makeshift homes with their own materials and, plastic sheets. Women will stay with the children, while men go to nearby towns to look for jobs and relief. If the flood water i s very high, public buildings, such as schools and clinics, will be opened as shelters, where people will take refuge.

2.14 Households with more substantial assets have a different coping strategy because they have less flexibility than the landless people. Their houses are built with stronger materials and they have some furniture, so they usually remain at their house in order to protect their assets. Women, children and elderly to relatives and young men may stay either on the machang or on the roof. Cattle will be taken to higher ground. If fields are flooded for a long time (2-3 months in 1998), farmers will sow aman paddy seeds in makeshift seedbeds made out o f water hyacinth,

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jute sticks and mud. Women will sow seeds o f vegetables, especially creepers in earthen pots and tie them on trees. Seedlings are planted in the fields when flood waters recede.

2.15 Employment. Loss o f employment i s l ikely to be far less than it was in 1998, when average monthly wage earnings during July-October 1998 were 46 percent below their average monthly earnings one year earlier. Given that ,the duration o f the 2004 floods was approximately one-half that o f 1998, and that the damage to the aman rice crop and overall economy was also about one-half the size, labor earnings losses may also have been proportionately less severe than in 2004.

2.16 Urban households. In urban areas, slum dwellers typically live in poorly drained areas that suffered from long periods o f standing water that led to increased prevalence o f diarrheal disease with particularly adverse effects on children. Flood waters also reduced employment opportunities and incomes o f these households. Moreover, though the value o f their housing i s not large (according to NGO estimates, the cost o f rebuilding a simple house made o f corrugated iron and bamboo panel walls using new materials i s only about Tk 11,800 (US$200), loss o f housing assets bring about severe hardships for poor households.

C. GOVERNMENT RESPONSE: FOOD DISTRIBUTION PROGRAMS

2.17 Government relief programs to provide for the immediate needs o f flood-affected households consisted mainly o f food transfers (mainly rice) through the Gratuitous Relief (GR) program. Survey data from 1998 indicate that GR distribution was well-targeted to flood-affect, though not necessarily poor, households in 1998, and most reports suggest that these programs were in general well-targeted in 2004, as well. These relief programs involved only a small amount o f resources transferred per participant, however.

2.18 Two food-assisted programs, Vulnerable Group Feeding and Food For Work, are major components o f medium-term efforts to assist the poor who suffered from the floods. In order to increase access to food by poor rural households, the government’s Vulnerable Group Feeding program has been expanded by 81 thousand tons from an initial budget allocation o f about 90 thousand tons to 170 thousand tons. This increase is, in principle, supported by food aid resources under the Emergency Operation (EMOP) o f the World Food Program.” Under this program, a general one-time food ration o f 30 kgs o f grainI3 i s to be provided to one mil l ion card-holding households (reaching approximately 5 mil l ion people). Timing o f this ration i s to be geographically based, with six districts (Sirajganj, Netrokana, Sunamganj, Habibganj, Kishoreganj, and Brahmanbaria, al l in the flood-affected northeast region of Bangladesh) receiving their ration in September, and districts in various other parts o f Bangladesh receiving their rations in subsequent months from October through January 2005. Cards will be allocated according to the same criteria used in the regular VGF program.

2.19 Because the number o f households that meet the criteria for VGF exceeds the planned program size, there will be considerable discretion amongst union parishad authorities regarding who receives these cards. Nonetheless, data from the 1998 flood suggests that the VGF criteria

”The EMOP also contains resources for expanded Food for Work from October 2004 to May 2005 through the Local Govemment Engineering Department (LGED). The Bangladesh Water Development Board and the Department of Forestry and Environment may also be involved in special interventions, as well.

I3Given a shortage o f Govemment wheat stocks, but ample rice stocks, VGF distribution i s likely to be entirely in the form of rice, with WFP food aid wheat swapped with the GOB on a 1: 1 basis that reflects the approximate current costs of the two commodities. In previous years, such swaps typically involved a higher ration of wheat to rice, e.g. 1.25: 1 that reflected lower costs of wheat than of rice.

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effectively target the poor, though not necessarily the most flood-affected among flood-exposed households, 35 percent o f households in the bottom quintile o f expenditureslcapita received grain transfers compared to 18 percent and 8 percent in the top two quintiles. Thus, the 1998 experience suggests that if similar mechanisms are employed, VGF may be relatively well-targeted to poor households, though not necessarily to the most flood-affected, Expanded Food for Work programs will begin mostly in January 2005 after water logged soils have partially drained and heavy earthwork involved in building roads i s feasible.

2.20 The cost o f the proposed expansion in VGF and FFW will be met by food aid resources under the Emergency Operation (EMOP) o f the World Food Program. As o f mid-September, however, only about US$24 mil l ion o f the US$74 mil l ion in resources has been committed by donors. Nonetheless, the Government currently has sufficient stocks for this program. Food aid in kind i s not necessary for the expansion in program, nor i s there a market shortfall o f grain. Market prices have remained relatively stable since the floods (the wholesale national average price o f coarse rice rose only 3.6 percent between June and August). Given ample availability o f foodgrain, stable prices and the prospect for continued private sector imports, cash transfers or cash for work public employment schemes are a promising alternative to food transfers in-kind in the coming months. The implication i s that the major contribution o f EMOP food aid i s as a fiscal support to targeted transfer programs.I4

2.21 Even with the benefits o f Government and private transfers, existing microcredit programs, and stable food prices, many households that suffered from lost labor earnings, illness, crop losses, and damage to productive assets and housing, resorted to informal sector loans as a major thrust o f their coping strategies. Though these loans can be instrumental in preventing serious reductions in food consumption and health status, the burden o f these debts i s l ikely to remain long after the visible effects o f the flood are gone. Following the 1998 floods, borrowing was also a major coping strategy, with households borrowing the equivalent o f about 1 month o f consumption. Th is debt remained essentially intact one year later, however, suggesting the need for additional mechanisms to provide credit or retire loans o f poor flood-affected households.

2.22 The Need for Continued Monitoring. To date, the policies o f the Government o f Bangladesh, and in particular the Ministry o f Food and Disaster Management, have been highly effective in helping to ensure sufficient availability o f food. Stocks o f grain are sufficient for planned distribution, and a policy o f promoting private sector international trade has helped stabilize market supplies and prices. Food markets are very fluid, however, necessitating continued monitoring and analysis to adjust policies and distribution to avoid further losses in expected production or disruptions in markets. In addition, because food insecurity resulting from lack o f purchasing power i s less obvious than price movements, indicators o f worsening deprivation, such as increased incidence o f migration, asset sales, and child malnutrition, should be carefully monitored.

D. SPECIAL NEEDS OF WOMEN AND CHILDREN

2.23 Relief agencies (Government, NGOs, and donors) do not always adequately address the special needs o f women and children, who tend to suffer adverse consequences both in the short

l4 In principle, in the absence o f food aid, the Ministry o f Food and Disaster Management can float tenders for imports o f wheat. The most recent tender for wheat was largely unsuccessful, however, (resulting in contracts for only about 10,000 tons out of 50,000 tons in the tender), because o f a lack o f bidders. Since India has been subsidizing exports and their export prices are lower than intemational prices, international trading companies may have been reluctant to submit bids. In this situation, local tenders or a change o f tender specifications may be alternative means of government procurement.

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and long term. Relief food (usually rice, wheat flour, pulses) does not provide essential nutrition for infants and children. Lactating women may not have milk due to flood related stress and lack o f nutritious food - so infants and children under two years o f age become malnourished quickly. Government and NGO nutrition and feeding programs for pregnant and lactating mothers and young children oRen stop during floods, with adverse nutritional consequences. WFP estimates that nearly one mil l ion children suffered from malnutrition during the 2004 floods because o f inadequate intake o f appropriate food.

2.24 Lack o f sanitation facilities also causes severe problems to women at the time o f floods. Reports indicate that majority o f shelters do not have latrine andlor the latrines were submerged under water. Elsewhere, even where latrines were available, the supply was inadequate: one latrine for over 500 families, Furthermore, during the floods, essential health services discontinued and women were unable to get their regular contraceptives supply, potentially resulting in thousands o f unwanted pregnancies, botched abortions, increased morbidity for women, and reduced health outcomes.

2.25 Security o f Women, Adolescent Girls and Children. Social cohesion i s st i l l effective in rural areas o f Bangladesh and, in general, provided security to women, adolescent girls and children during the floods. Security in the rural shelters i s provided by the local leaders (e.g. Union Parishad chairlmember, school teachers, and religious leaders) and there were no reports o f robberies or harassment at rural shelters during the 2004 floods. People living on roads and embanhents, however, were much more vulnerable. Social capital i s lacking in urban areas, as people from different districts l ive in slums and usually do not socialize with each other. As a result, inadequate security o f women, adolescent girls and children was reported as a problem in urban shelters, particularly harassment o f women and girls.

2.26 programs for women, children and other vulnerable groups, including:

Several measures could be undertaken to improve post-flood relief and recovery

(a) Increase security for women, girls and children in flood shelters, especially in urban areas. The local govemment representatives, school teachers, religious leaders and NGOs could be mobilized and form flood mitigation committees to manage local flood shelters with the help o f civi l administration and to provide security with the assistance o f police, village defense party (VDP), community police, and guards (chowkidars).

(b) Assist people with disabilities. People with disabilities (PWD) require special attention for their rescue, as well as in shelters. Rescue workers and shelter volunteers need to be trained to assist with PMb. Within shelters, mothers and wives o f PWD are also vulnerable, as they are unable to search for relief or work. The locations o f shelters should be well publicized so that family and friends can take people with disabilities.

(c) Special attention to other vulnerable groups, Stigmatized groups, such as commercial sex workers and transgender people, are usually driven from shelters andlor harassed if their identity i s known. Shelter management committees should provide security to these (and other) vulnerable groups.

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Table 1: Production Losses due to Floods, 1998 and 2004

1998-99 Pre-flood estimateharget Estimated loss Revised Production Estimate Losseshitial Production Est.

2004-05 Pre-flood estimateitarget Estimated loss Revised Production Estimate Lossesflnitial Production Est.

Aus, Total Aus Atnan Atnan B O r O Total Rice Wheat Foodgrain

1.9 9.5 11.4 7.8 19.2 1.8 21 -0.3 -1.76 -2.06 2.25 0.19 0.11 0.3 1.6 7.74 9.34 10.05 19.39 1.91 21.3 -16% -19% -18% 29% 1% 6% 1%

1.80 12.00 13.8 13.20 27.00 1.20 28.20 -0.40 -0.60 -1.00 0 -1.00 0.00 -1.00 1.40 11.40 , 12.80 13.20 26.00 1.20 27.20 -22 Yo -5 % -7 % 0 % -4 Yo 0 % -4 %

Note: 1998-99 audaman loss as share of initial production estimate: -1 1 percent. Source: del Ninno, Dorosh, Smith and Roy (2001); Food Planning and Monitoring Unit.

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ANNEX 3 - RAPID ENVIRONMENTAL IMTACT ASSESSMENT

3.1 The field assessment was conducted during 18-21 September 2004 to assess the scope o f sectoral flood damage. Preliminary environmental impacts o f flood were assessed based on the observation o f the damaged sites visited during the field assessment period, discussion with World Bank and ADB team members, and evaluation o f available documents and other information. The following i s the summary o f the preliminary environmental impacts and recommended actions.

A. ENVIF~ONMENTAL IMPACTS

3.2 Riverbank Erosion and Siltation. Most o f the rivers are morphologically very active. All major rivers such as Meghna, Brahmaputra, and Ganges, carry huge sediment loads from the large catchments that l i e in neighboring countries. Shifting o f river course i s a common problem and contributes to the riverbank erosion and siltation. The recent flood accelerated riverbank erosion and siltation in a number o f locations, which was observed during the field visits. This erosion caused substantial irrigation loss and displacement o f large number o f people due to loss o f land, crops, and housing. In addition, siltation caused closing o f the offtakes o f the distributory channels.

3.3 Soil Erosion. Overall, soil erosion i s apparent along the river embankments. Soil erosion along the road and railway embankments was most severe in the areas situated close to major rivers, where road sections had been completely washed away by the erosion. The overflow o f the river water, together with strong currents, contributed to the physical damage o f the embankments and sedimentation in adjoining rice paddy fields. The continuous use o f damaged roads, encroachment, debris, uprooted trees on the roadside, and sandy soil base in the embankment, have al l exacerbated the soil erosion o f the damaged areas and are posing safety r isks for communities.

3.4 Loss o f Flood Flows due to Encroachment. Sedimentation and encroachment that has occurred over the years has contributed to the aggravation o f flood damage. Lakes, wetlands, and natural drainage have been encroached upon by earth filling, conversion to agricultural land, depositing o f city garbage and construction o f buildings and roads, As a result, natural water retaining ponds have disappeared and many o f the drainage channels lost their original conveyance capacity, which has caused stagnation o f flood flows. The flood and resulting inundation o f the land caused socioeconomic impacts such as loss o f crops and agricultural land, livestock, housing, and the interruption o f industrial production activities.

3.5 Water Contamination and Health Impacts. The impact o f the flood on water quality has posed major health concerns. Due to mismanagement o f collection and disposal o f solid waste in urban areas, especially in Dhaka, considerable amounts o f waste were disposed in the storm drainage system, which caused blockage o f storm drains and overflow o f the storm water. Urban environmental facilities including production wells, tube wells, pit latrines, and ground level water reservoirs in the flooded areas were submerged. The drinking water in the flooded areas i s then contaminated by flood water and industrial storm run-off. Due to lack o f adequate water and wastewater treatment facilities, the contamination o f surface and ground water, particularly in the urban areas, spreads diseases and has become a major public health concem, particularly for children.

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3. NEEDS AND ACTIONS

3.6 Environmental Assessment Framework. The needed immediate response to flood damage i s to restore andlor improve the damaged facilities with flood protection measures. While rehabilitation and protection work will result in major positive environmental impacts, some negative impacts may occur due to the site selection and during the construction. To ensure that environmental consideration i s taken into account the rehabilitation and protection work, an appropriate environmental assessment framework should be developed in accordance with the environmental assessment requirements o f the Government. The EA framework should include the following environmental assessment requirements: the development o f environmental site selection criteria; preparation o f environmental assessment reports; review and clearance; institutional responsibilities; estimated budgets for environmental mitigation measures and monitoring; and staffing and training needs. I

3.7 Environmental Monitoring. There are a several environmental monitoring needs which are required to: (i) test the drinking water quality; (ii) monitor the efficacy o f the erosion protection measures for embankments; and (iii) monitor river hydrology and morphology, While it should be inspected urgently, well water used for drinking purposes should undergo ongoing water quality tests to check the health impacts and reduce health risks. Soil erosion monitoring should be conducted during the rehabilitation work and also as part o f ongoing monitoring. As a long-term monitoring initiative, online monitoring o f river erosion and platform changes, as well as morphological changes, should be developed and institutionalized among relevant agencies in order to utilize the flood information database in their design and installation structure o f roads, railways and bridges, and for planning flood preparedness activities.

3.8 Community Disaster Preparedness and Management. Due to poor socioeconomic conditions, the poor mostly l ive in the disaster-prone areas and are more vulnerable to the effects o f disasters. Since the poor depend on the natural resources, they cannot recover from the damage o f natural disasters only on relief resources. Awareness building o f the flood related environmental r isks i s important to understand the linkage between environmental degradation and natural disaster. Enhancement o f people’s capacity to protect and manage natural resources and ecosystem i s essential to cope with natural disasters and sustain their livelihoods. Community-based awareness and capacity building activities should include not only emergency response activities, but also proactive community-based environmental management approaches.

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ANNEX 4 - HOUSING

4.1 This housing damage assessment i s based on damage reports provided by the Ministry o f Food and Disaster Management (MFDM); the. most recent figures were given on September 21, 2004. Further information was available through other sources and reports, including the Disaster & Emergency Response (DER) Sub-group.

4.2 In addition, the joint A D B M mission visited the Narayanganj and Manikganj Districts between September 18 and 19, 2004 to review the damage and discuss with local officials the need for reconstruction and recovery.

A. ESTIMATED HOUSING DAMAGE

4.3 Reported Damage. The 2004 flood severely impacted the housing stock and left hundreds of thousands of homes destroyed or heavily damaged. According to MFDM, 39 districts were affected with total o f 896,000 un i ts fully damaged and 3.39 mil l ion uni ts partially damaged,

4.4 The flood washed away homes, particularly at the riverbanks. Due to the severe erosion, not only the home disappeared but also the land was washed away. Many o f the affected people took shelter in their relatives’ homes or in schools, religious institutions, or other community buildings. A considerable portion o f flood victims are st i l l occupying the temporary shelters on the flood protection embankments. Lack o f access to safe drinking water and lack o f sanitary infrastructure within flood shelters contributed to the critical condition. In rural areas, villagers who did not leave their homes built bamboo platforms at a higher level or raised the height o f their beds by tightening them with bamboo and wooden poles.

4.5 Housing types. Three different type o f housing can be found in the flood affected areas:

(a) Kutcha houses are mainly constructed o f corrugated iron sheets or bamboo. Structural support material used for this type i s bamboo or wood. Kutcha houses have no foundation and some o f them are constructed on an elevated mud base or bamboo columns to offer a minimum protection against raising water. Due to the structural weakness, this type o f housing does not provide a high degree o f protection against floods.

(b) Semi-pucca houses use a combination o f materials such as bricks, iron sheets and concrete. I t can be observed throughout the region that the use o f low quality construction material, and the lack. o f structural binding material and proper bracing, increases this housing type’s vulnerability to floods.

(c) Pucca houses are in general masonry structures, with mainly reinforced concrete foundations. These houses have either load bearing brick walls with bracings or reinforced frames. The construction quality seems to be weak. However, compared with the previous described housing types, Pucca houses offer a higher degree of flood protection. Flood damage was reported mainly with regard to the Kutcha and Semi-pucca housing.

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Pre-flood Asset Value

Type of Damage Unit Number Average Value Total (Thousands) Taka Million Taka

4.6 Heavily Damaged Units. The average construction cost o f new homes varies widely throughout the region. According to the information provided by local officials during the site visits and the latest damage reports prepared by the Disaster Emergency Response (DER) sub- group, the average replacement cost o f a minimum standard house i s about Tk 16,500 +/- 7,000. In addition, a depreciation factor o f 20 percent was introduced to determine the pre-flood value. Thus, the average pre-flood asset value i s estimated at 13,200 TWunit. Th is amount was confirmed with local NGOs, which determined the pre-flood asset value to be in the range o f Tk12,OOO to 15,000.

Total Million US$

4.7 Partially Damaged Units. The flood affected the stability o f several houses by washing out or decreasing the bearing capacity o f the soil beneath the foundation, causing the homes to either fall down or tilt sideways. Partially damaged houses maintained their structural integrity, but the non-structural elements were affected. Thus, damage i s specific to the individual unit. In order to calculate a damage estimate, a ratio o f 25 percent o f the average replacement cost has been applied in this assessment for partially damaged housing units.

Heavily Damaged Units Partially Damaged Units Loss o f House-hold Goods

Loss of Goods 4.8 The houses visited during site visits revealed that the majority o f the damaged homes met minimal human needs and did not have in-house water and sanitation facilities, Especially in rural areas, homes did not have washing machines, TVs, refiigerators, etc. Although the houses contained extremely basic necessities (spread beds, cloths, few kitchen goods), these goods must be replaced. The value o f these goods may be estimated at Tk 1,500 for a family living in a heavily damaged house.

896.0 13,200 11,827 200.5

3,391 .O 4,125 13,988 237.1

896.0 1,500 1,344 22.8

Total Estimated Damage 4.9 Based on the calculation assumption above, the total damage i s estimated as follows:

Sum

Table 2: Housing Damage Estimate

27,159 460.4

4.10 Given the high uncertainty in the number o f damaged units, a damage ratio has been introduced. Experience f iom other assessments carried out by the team has shown that the damage reports prepared without a detailed validation process result in a 20 and 30 percent overestimation, in some cases even 50 percent. It was thus decided to present the init ial damage estimate in a range between -20 percent and +5 percent. The high case o f 5 percent has been introduced to reflect the additional damage caused by the September flood. Based on these assumptions, the total damage i s estimated between US$370 mil l ion and US$480 million.

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Table 3: Range of Estimated Damage

Heavily Damaged Units Partially Damaged Units

" ...........

1 High Case +5 percent I Base 1 LOW Case -20 percent

Unit Number Average Value Total Total (Thousands) Tk Million Tk Million US$

896 19,800 11,827 301

3,391 4,125 13,988 237 "" ......... " ........ I" ....... "" " .... ....... l..".l l.l.l ..... "" ........ " .....I..."....I.." .... ",..I ".."....."......".I...I

US$370 mill ion 1 US$460 million US$480 mill ion I

Sum

B. ESTIMATED RECONSTRUCTION/RECOVERY NEEDS

25,815 538

4.11 Reconstruction Costs. The condition o f the housing buildings i s poor. During the reconstruction scheme, at least to some extent, safety measures should be considered in the designs and the construction methods to reduce the vulnerability o f the houses to future floods and other hazards.

Low Case -20 percent

US$430 Mil l ion

4.12 The additional cost o f these measures depends on the level o f improvement to be introduced. At a minimum, the buildings should be reconstructed on a relatively elevated foundation, resistant to certain level o f scouring affect o f flood. The cost o f such improvement might be anticipated to increase the reconstruction cost o f Tk 16,500 by 20 percent. Th is results in an average reconstruction cost o f Tk19,800. However, the repair cost would remain the same.

Base High Case +5 percent

US$S38 Mil l ion US$S60 Mil l ion

Table 4: Estimated Reconstruction Cost (including improved design standards)

4.13 Following the rationale presented in section B, a range between -20 percent and +5 percent should be considered to reflect uncertainty, particularly with regard to the reported damaged units. Thus, the total reconstruction cost i s estimated between US$430 mil l ion and US$560 million.

C. RESPONSE TO HOUSING NEEDS

4.14 Repair and reconstruction o f damaged homes has been supported by the Government's recovery program. As part o f the flood rehabilitation program, the Ministry o f Food and Disaster Management distributed 10,800 bundles o f corrugated iron (CI) sheets and Tk 540,000 (US$91,525) in the affected districts as house building grants. Additional distribution o f C I sheets

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i s foreseen in the amount of Tk 200 mill ion (US$3.4 million). UNDP i s providing an additional 100,000 bundles o f CI.

4.15 In addition, a Disaster Risk Mitigation fund was established to support victims who have lost their income generating assets due to the flood disaster. An amount o f Tk 750 mil l ion (US$12.7 million) has been allocated to this fund under the current budget. In the United Nations Bangladesh Floods Flash Appeal 2004, family shelter and non-food item needs total US$34 million.

4.16 International NGOs, such as CARE, CONCERN, and Oxfam, have also provided emergency shelter. CARE-Bangladesh has provided 5,OOOMT o f plastic sheeting, Oxfam has provided reconstructiodrehabilitation support to 16,000 flood affected households in Sunamganj and Gaibandha Districts (as o f the end o f July) and plans to extend i ts support for the reconstructionhehabilitation o f another 7,500 homes in Faridpured and Rajbari.

D. RECOMMENDATIONS

Short-term 4.17 Although the exact number o f affected households cannot be verified, the demand for housing repair and reconstruction i s large. Aside from supplying building materials, the Government should consider offering assistance targeted to the poorest flood victims. A program could be created following the criteria o f the VGF program, providing cash grants to those who lost their homes and other assets. The cash grants would allow beneficiaries to decide directly on how best to restore their livelihood and homes. However, technical guidance i s also recommended.

Mid-to long-term 4.18 The incorporation o f multihazard risk mitigation measures in the design o f infrastructure systems, housing, health, and education facilities i s essential to reducing damage to the built environment.

4.19 A mechanism for housing reconstruction should be considered to allow affected households to receive financial assistance soon after a disaster. The funding scheme could combine micro-credit with a grant element to make the financing affordable. The maturity o f the loan as well the collateral issue would need to be addressed. Furthermore, a financial r i s k mitigation mechanism should be incorporated to strengthen the sustainability o f such a program.

4.20 Further support should be given to NGO and local initiatives that have introduced innovative design approaches for minimum standard housing. The design increases the structural integrity and allows easy dismantling o f the house in case o f a flood, thus reducing future vulnerability.

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3 5 Jaipurhat 36 Barisal 9 37 Noakhali - 38 Kushtia 39 Laxmipur 7

TOTAL 896

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4 4 103 112 17 17 4 4 19 26 3,391 4,287

ANNEX 5 - TRANSPORT INFRASTRUCTURE

5.1 The preliminary assessment o f the transport sector covers road, bridge, ra i l and inland water transport infrastructure. The joint team reviewed field data and preliminary assessment reports prepared by the Roads and Highway Department (RHD), Local Government Engineering Department (LGED), Bangladesh Railway (BR), Dhaka City Corporation (DCC) and Ministry o f Shipping (MOS). The team visited the Districts o f Bogra, Brahmanbaria, Habiganj, Jamalpur, Mymensingh, Natore, Sirajganj, Sunamganj, and Sylhet to assess flood-related damage.

A. DAMAGE ASSESSMENT

5.2 The transport sector, specifically the road sector, was the most seriously affected o f the infrastructure sectors. The 2004 floods caused extensive damage to the primary road network, managed by the RHD, and to the secondary road network, managed by the LGED. About 2,970 km, or 14 percent, o f the primary road network was affected by the floods. Damage was particularly severe on some road sections because incidences o f flash flooding led to wave action and erosion o f many embankments. About 25,000 km, or 25 percent, o f the secondary road network comprising Upazila Roads (UZRs) and Union Roads (URs) , were affected by the floods. Many UZRs and U R s were found to have failed sections and structures that were washed away. This was partly due to l ow design standards. Dhaka division suffered the most damage in the road sector, including urban roads. Railways suffered damage on several network sections. Inland waterways and airports were marginally affected by the floods, according to information received from the Government. The team noted that insufficient maintenance adversely impacted and increased the damage on road and railway infrastructure.

5.3 The preliminary cost o f asset damage caused by the 2004 floods to the transport infrastructure sector has been assessed at about U S 2 6 0 mil l ion (Tk 15 billion). The asset replacement cost i s estimated to be U S 3 4 0 mil l ion (Tk 20 billion) to US$380 mil l ion (Tk 22 billion), depending on the engineering standards adopted during the reconstruction phase.

Road Sector Infrastructure

5.4 Road transport infrastructure suffered extensive localized damage in al l o f the 39 flood- affected districts. During the field visits, the team observed: (a) damage to'road pavements; (b) damage to bridges and culverts; (c) damage to embankments; (d) total failure o f embankments including pavements; and (e) total failure o f bridges and culverts. The damage was caused by a combination o f factors, including heavy persistent rainfall combined with flooding, and in some cases, flash flooding.

5.5 The institutions (RHD, LGED and DCC) responsible for most o f the country's road infrastructure provided the mission with their preliminary assessments. Total damage was estimated at about US$236 mil l ion (Tk 14 billion).l5 The breakdown o f the estimated damage by type o f road asset i s as follows: (a) National Highways (NHs), Regional Roads (RHs), District Roads (DRs) and related structures - about US$111 mi l l ion (Tk 6.5 billion); (b) WZRs, U R s and related bridgeslculverts - about US109 mil l ion (Tk. 6.4 billion); and (c) Dhaka City urban roads - about US$16 mil l ion (Tk 944 million).

"This amount does not include the damage caused by the flooding to Village Roads A and B, which are the responsibility o f Local Government Institutions (LGIs).

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Primary Road Network

zone

5.6 RHD i s responsible for the management o f the primary road network, which i s broken down into 3,473 km o f NHs, 4,254 km o f RHs, and 13,724 km of DRs, totaling about 21,45 1 km of roads, The preliminary flood damage assessment for the RHD road network i s summarized as follows:

Affected road Affected structures Total damage Assessed Replacement length bridgeslculverts (US$ million) Cost

Affected Road Length: 2,970 km Affected Number o f Bridges: 171

= Affected Number o f Culverts: 135 Affected Number o f River Jetties: 26

Dhaka Comilla Rangpur

Barisal Total

Rajshahi

5.7 The R H s and DRs sections o f the primary road network suffered more extensive and structural damage than the N H s . This i s due to their much