16: Promoting Portfolio Performancea
The 2006 Annual Report on Loan and Technical Assistance Portfolio Performance identified several problems: (i) a stagnation in OCR loan approvals; (ii) persistent delays in project implementation; (iii) a growing problem with year-end bunching for loan and TA approvals, as well as project, program, and TA completion reports; (iv) a steady decline in OCR project loan disbursements during the previous decade; (v) difficulty in meeting the conditions for program loan tranche releases; (vi) lending concentrated in a few DMCs; (vii) in response to falling interest rates, a few large borrowers prepaid their older and relatively expensive OCR loans; (viii) negative net resource transfers from ADB to DMCs; (ix) a fall in OCR income of 43% during 2001–2004; and (x) weaknesses in portfolio management—20% of ongoing loans and 75% of ongoing TA activities went without a review mission during 2004. The report concluded that these broad trends all supported the contention that ADB’s traditional lending products and systems no longer met many of the needs of its key clients. Unless ADB could address these issues by developing new products and procedures to meet the DMCs’ development needs, ADB would be threatened with losing relevance as the premier development institution in Asia and the Pacific.
The DEC agreed that the strategic questions raised by the report were of fundamental importance to ADB’s continued relevance to the region and that the significance of the issues was enhanced by the independence of the analysis. The DEC agreed with ADB Management that, while some of OED’s recommendations were quite sensible, taken together they were not sufficient to deal with the portfolio problems diagnosed in the report. The DEC requested ADB’s Management to prepare a comprehensive action plan to address the key strategic issues analyzed in the report.
The resulting action plan was prepared in November 2005. Among others things, it included actions designed to (i) enhance project administration efficiency, (ii) improve TA portfolio management, (iii) improve planning and timing of Board consideration of loans, (iv) improve sector selectivity, (v) strengthen project monitoring and evaluation, and (vi) increase and improve the OCR portfolio. The action plan incorporated initiatives being undertaken by ADB in its reform agenda, including the innovation and efficiency initiative, the strategy for enhancing ADB support to middle-income countries and borrowers from OCR, and managing for development results at ADB. OED will continue to monitor the implementation of the action plan.
a Available: www.adb.org/documents/reports/portfolio_performance/2006/rpe-oth-2006-10.pdf
Box 17: Improving Country Partnership Strategies
Country partnership strategies have become the key instrument to set priorities for ADB’s operations in a country. Thus, country assistance program evaluations currently have the clearest, most direct, and most systematic influence on ADB’s operations. Experience in 2005 and 2006 suggests that their influence on the formulation of new strategies has been mainstreamed. The Board does not normally discuss a country partnership strategy until after the DEC has considered the corresponding country assistance program evaluation and informed the full Board of the DEC’s views based on the findings. Lessons from country assistance program evaluations fall in 10 areas:
• Future assistance should be prioritized based on selectivity and focus, with successful ADB performance in a sector as one key criterion.
• Country partnership strategies should be results based—the lack of monitorable indicators made it difficult to evaluate past strategies.
• Success has been greatest when ADB maintains a long-term involvement in a sector and combines programs for capacity building with investment support.
• Projects and programs using relatively simple designs that are rooted in local conditions are more likely to succeed than complex interventions.
• Steps must be taken to strengthen the impact of TA used to support policy reform, capacity building, and institutional strengthening.
• ADB should deepen its relationships with broader society, as this enhances ownership and often helps to achieve better development results.
• ADB should intensify its coordination with development partners and stakeholders.
• Governance, including the need to control corruption, should be explicitly addressed in country partnership strategies, and not just as a crosscutting theme.
• The understanding of corruption and the risks that it has for ADB’s operations remains superficial in country partnership strategies.
• Failure of project designs to recognize and address institutional weaknesses in implementing agencies early on leads to weak project performance.
Examples of recent country assistance program evaluations that have influenced the subsequent country partnership strategies include those for Bhutan, Cambodia, Indonesia, Lao People’s Democratic Republic, Philippines, and Uzbekistan.
Box 18: Agriculture and Natural Resources Sector Assistance Program Evaluation in the Lao People’s Democratic Republic a
OED evaluated 20 years (1986–2005) of ADB support to agriculture and natural resources development in the Lao People’s Democratic Republic in a sector assistance program evaluation covering 2 programs (totaling $50 million), 7 investment projects ($84 million), 32 advisory TA operations ($12.4 million), 11 project preparatory TA operations ($6.7 million), and 14 regional TA operations ($10.5 million) with components in the Lao People’s Democratic Republic.
In the wake of the government’s New Economic Mechanism in 1986, aimed at a transition to a market-based economy, ADB responded with broad, policy-based lending intended to reduce market distortions by liberalizing trade, rationalizing pricing practices, restructuring taxation, and separating commercial and central banking. Investment projects began in 1993 targeted at agribusiness, commercialization of smallholder agriculture, irrigation, livestock, river basins, watersheds, upland agriculture, and tree plantations.
The study found that, while individual projects had been relevant to the country’s development needs and to agriculture and natural resources issues, in the aggregate their effect had been diffused and, therefore, less effective. The country strategies for assistance to the agriculture and natural resources sector were rated partly satisfactory, being predominantly project driven. The existing country partnership strategy did not have a framework for prioritizing assistance to the sector. Neither investments nor policy-based loans had been coordinated. Thus, the evaluation study rated the overall performance of assistance as partly successful.
ADB’s portfolio management and project administration in the sector needed strengthening. Review missions were not conducted regularly, they did not cover remote areas, and appropriate expertise was not always available. While the relevance of sector assistance was important, relevance alone would not make ADB an effective institution. Greater selectivity in engagement was required.
ADB’s Management found the evaluation study timely in that it fed into the preparation of the country partnership strategy for 2007–2011. It declared the study’s conclusions generally valid, but queried what would have happened in the absence of ADB’s operations. ADB’s Management suggested that this question be asked in all subsequent sector assistance program evaluations.
After the evaluation study was released, the minister of agriculture and forestry investigated whether or not poor project performance was unique to ADB’s operations in the sector, by means of a series of government-led evaluations of external assistance in different subsectors (viz., irrigation, forestry,
