Regions and Countries

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p. 6 of 20 BACK | NEXT I. Country Performance Assessment A. Economic Performance Assessment B. Poverty Assessment C. Assessment of Socio-Environmental Performance D. Governance: Sound Development Management E. Implementation Assessment II. Country Operational Strategy III. Sector Strategies IV. Regional Cooperation V. Donor Activities and Aid Coordination VI. Cofinancing and Catalyzing External Resources VII. ADB’s Operational Program VIII. Economic and Sector Work Program IX. Local Cost Financing

Country Assistance Plans - Bhutan : I. Country Performance Assessment

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E. Implementation Assessment

1. The Portfolio

39. Bank operations in Bhutan started in 1983. As of December 1999, the Bank had provided 15 loans totaling $75.2 million and 66 TAs (47 advisory and 19 project preparatory) in an amount of $24.5 million. During 1999, one loan was approved and one loan was closed on 31 December 1999, both in the energy sector. Bhutan began 2000 with five ongoing loans amounting to $29.4 million with $16.0 million available for disbursement in the portfolio (see Appendix 2). The loan approved on 25 November 1999 was declared effective on 14 January 2000. With the approval of 5 new TAs during 1999, there are now 13 ongoing TAs (9 advisory and 4 project preparatory) amounting to $6.6 million. In terms of project performance classification, all ongoing loans are classified as satisfactory in both implementation progress and achieving development objectives. In 1999, while the performance in contract awards of $1.7 million fell short of projected $2.7 million mainly due to the delay in loan effectivity of the loan approved in 1998, the disbursement of $2.1 million for the year, however, exceeded the target of $1.9 million.

40. As ADB increased the exposure from one loan of $5 million a year to a loan every year up to $10 million since 1997, the loan portfolio has become "younger" overtime. The fluctuation in the contract awards and the disbursement performance overtime reflects mainly the changing maturity of the portfolio, which consists of a small number of loans. The overall undisbursed loan amount in the 2000 portfolio was $22.5 million including the newly effective loan, about 77 percent of the net effective loan amount of $29.4 million. This reflects a "younger" portfolio compared with less than 57 percent of net effective loan amount at the beginning of 1999.

41. The performance in loan effectivity has also fluctuated substantially from one project to another ranging from more than 3 months to less than a day after loan signing depending on the conditions required prior to declaring the respective loan effective. Establishment and maintenance of project implementation structure has been satisfactory, as most of the project implementation offices were established prior to the approval of the loans. Advanced procurement and recruitment of consultants were also useful to reduce the average time taken in recruitment of consultants from the date of loan approval to the date of first contract award. However, the utilization of the imprest accounts as reflected by its turnover ratio was slow and the executing agencies (EAs) still have skepticism in operating the account due to the depletion of account balance as a result of currency depreciation between the time of replenishment and liquidation. Submission of audited accounts and financial statements were satisfactory. Requirement for loan extension was also reduced overtime. Compliance of loan covenants and assurances on social and environmental measures have been satisfactory.

42. Three loans have been post-evaluated with one unsuccessful, one generally successfully, and one partly successful. The unsuccessful multiproject loan, which was the first Bank loan to Bhutan, suffered from too many subprojects in different sectors as well as other implementation problems. Out of six subprojects under the loan, only four met their objectives. The Highland Livestock Development was rated generally successful. The project has contributed to increased production especially in milk output, and farmers' income more than doubled in nominal terms. The credit line to Bhutan Development Finance Corporation (BDFC) was rated partly successful. The project provided foreign exchange financing to industry, and broadened the industrial/business base, which in turn helped create jobs, support ancillary business, introduce new technology to Bhutan, and provide foreign exchange earnings/savings. However, BDFC failed to attract sufficient private sector investment as envisaged during project formulation and develop into an efficient development finance institution. BDFC continues to rely on capital injection from the Government from time to time, including the recent issuance of government bonds amounting to Nu50 million.

43. A post evaluation report was also prepared for four TAs provided to the Ministry of Finance to enhance its capabilities to effectively plan and monitor the public sector resources. ADB assistance was able to substantially improve efficiency in day-to-day operations through computerization of budget and accounting system. However, these TAs were rated partly successful only because the TAs did not fully develop the necessary institutional capacity to sustain and effectively undertake public expenditure management. Under UNDP's assistance, the Government has prepared a development framework for effective aid coordination and identified requirements in terms of necessary human resources and institution development. Within this framework and analysis, the Government has identified the priority of addressing the basis of preparation of accounts, use of information technology, shortage of skilled staff, and different reporting requirements among donor agencies. The Government of the Netherlands has provided assistance to improve the financial management of the public sector through the revision and updating of the 1988 Financial Manual. ADB is planning to further support these efforts through an ADTA in Public Sector Resource Management in 2000.

2. Issues in Project Implementation

44. Although the implementation of ongoing ADB-financed projects in Bhutan has improved, there are still a number of issues that are impeding project implementation. These include (i) rather limited involvement of EAs at early stages of project cycle, in particular during the designing of TAs; (ii) slow utilization and liquidation of imprest accounts; and (iii) transfer of project staff due to extended overseas training and the possible implication of the ongoing reorganization of ministries. ADB's Country Portfolio Review Mission (CPRM) in November 1999 agreed with the Government on a time-bound action plan to improve portfolio performance through enhancement of ownership throughout the project cycle including the feasibility study stage of project formulation. The agreed action plan includes performance indicators, responsible agencies and target date to address key issues: (i) needs assessment in TA formulation; (ii) TA consultants selection and engagement; (iii) performance of consultants; (iv) TA status of disbursements; (v) transfer of staff due to reorganization of ministries; (vi) adequate budget allocation for projects; (vii) timely submission of audited financial statements; (viii) imprest account denominated in US dollars; (ix) ADB review missions; and (x) project performance rating. The action plan is being implemented satisfactorily and will be monitored and updated as necessary during respective ADB missions prior to the next CPRM, which is currently planned for November 2000. Successful implementation of the action plan requires continued partnership and commitment from the project staff of both the EAs and the ADB.

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