Countries and Regions

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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 - Sri Lanka : I. Country Performance Assessment

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E. Implementation Assessment

1. The Portfolio

35. ADB operations commenced in Sri Lanka in 1968 and since then 89 loans (83 ADF and 6 OCR), amounting to about $2.3 billion have been approved by ADB. The first six loans were from OCR resources, but commencing in 1969 all public sector loans have been provided from ADF resources. The sectoral distribution of the lending program has been agriculture 38 percent, social infrastructure 20 percent, finance and industry 15 percent, energy 12 percent, and transport and communications about 14 percent. ADB has also provided $55.7 million for 162 TA projects, of which 94 were advisory and 68 for project preparation. The main sectors that have received TAs are agriculture and natural resources (42 percent), social infrastructure (20 percent), transport and communications (14 percent) and finance and industry (8 percent).

36. As of 31 December 1999, there were 22 ongoing loan projects in Sri Lanka, with total loan commitments of $854.8 million, of which net undisbursed funds amounted to $587.0 million (69 percent of portfolio)⁶ . Thirty-six percent (8 out of 22) of the loan projects in the portfolio are scheduled to close by the end of 2000. Only one loan is classified as partially satisfactory. The sectoral distribution of the ongoing loans is agriculture and natural resources 33 percent, transport 29 percent, social infrastructure 27 percent, and energy 11 percent. Appendix 2 provides details of the ongoing loans.

2. Issues in Project Implementation

37. The annual portfolio disbursement ratio (excluding programs loans) in the period 1996-1999 was 24.2 percent, 20.4 percent, 25 percent and 17.9 percent respectively, compared to the corresponding ADB-wide average in those years of 17.4 percent, 18.6 percent, 19.8 percent and 17.6 percent. Although Sri Lanka achieved the disbursement target in 1999, the disbursement ratio for 1999 was 17.9 percent as compared with ADB-wide average of 17.6 percent. The lower disbursement ratio in 1999 was largely due to project cycle effects, nonetheless, disbursement would need to be about $120-$150 million every year to match the projected loan commitments. It is currently estimated that up to one-third of the undisbursed loan funds are a result of previous delays in project implementation. The delays, which have been evident across most of the portfolio, were mainly caused by cumbersome and time consuming contracting and procurement rules and procedures as well as non-compliance with some major financial loan covenants. Some sectors (i.e. road, energy, water supply and urban development) were affected by (i) delays in timely action by the technical evaluation committees (TEC); (ii) poor quality of TEC reports; and (iii) delays in final clearance by the Cabinet Appointed Tender Boards.

38. Poor performance has also been observed in respect of recruitment of consultants. Delays in recruitment of consultants for the ongoing projects were over ten months, which is 65 percent of the active projects. These delays affected the start up operations and subsequently the completion of the projects. Another major delay in project implementation has been identified in setting up Project Management Units (PMUs). About 25 percent failed to establish PMUs even six months after approval of projects. The Government has recently taken actions to avoid these delays by setting up PMUs before loan negotiations, and introducing advance procurement for new projects.

39. The Government, with ADB’s technical assistance, has initiated measures to enhance and accelerate procurement and to remove other impediments to sound project implementation⁷. One of the key actions taken was the recent establishment of the Procurement Support Bureau⁸. The Bureau’s purpose is to speed up Government contracting and procurement, and to strengthen the capacity of the tender boards and tender evaluation committees to efficiently carry out this task. Major achievements in streamlining the government procurement procedures to enhance its effectiveness and strengthen the capacity of procurement staff include: (i) increase in the authority limits to handle/recommend awards of tenders under donor-funded projects; (ii) include project directors in TEC to promote ownership and timely and efficient conduct of committee functions; (iii) include guidelines on advance procurement action into the Guidelines on Government Tender Procurement Procedure to facilitate advance procurement action; and (iv) use donor’s standard bidding documents in all procurement under international competitive bidding.

40. In 1997 an ADB TA assisted in the preparation of an Action Plan for improved management of the portfolio⁹. The Action Plan was prepared in order to address generic and project specific implementation weaknesses in ADB’s loan portfolio. By the end of 1999, with the assistance of the Forum of ADB Project Directors and Sri Lanka Resident Mission (SLRM), the Government had made substantial progress in addressing the matters identified in the Action Plan. Of the 51 items listed in the Action Plan, 42 had been substantially completed. A detailed review and updating of the Action Plan will be jointly undertaken by the Government and SLRM during the Country Portfolio Review Mission (CPRM) in September 2000. The Procurement Support Bureau is assisting in completing the remaining items.

41. The improvements in the portfolio performance, particularly over the last two years, is a reflection of the more intensive contact between the Government and the ADB on project implementation matters since the SLRM was established in 1997. In this period, the Government and staff of SLRM have undertaken quarterly project performances review meetings and they have also initiated special project review meetings when required. Background studies for the September 2000 CPRM concluded that there has been clear evidence of improved portfolio performance, but that the extent of the improvements are not fully reflected in the statistical analysis because of the overhang of past delays and other portfolio weaknesses.

42. Out of the 29 projects that have been post-evaluated to-date, 45 percent were generally successful, 45 percent were partially successful and 10 percent unsuccessful compared to bank-wide averages of 53 percent, 41 percent and 6 percent, respectively. In 1997, ADB’s Operations Evaluation Office undertook a study of post-evaluation findings for Sri Lanka. The main conclusions were that: (i) project outcomes are highly influenced by economic policy and therefore the policy environment needs to be carefully assessed during project formulation; (ii) projects that involve new design options and technological changes would benefit from a pilot testing approach; (iii) the performance of the ADB's projects often depend on the capability of the executing agencies; and (iv) beneficiary involvement during project preparation and implementation is critical to project success. These findings have been fully taken into account during the formulation of the country programs and in detailed TA and loan project design during project processing.

43. ADB’s proposed Performance-based allocation (PBA) is being designed to: (i) promote aid effectiveness and aid-selectivity; (ii) provide input to ADB’s poverty reduction strategy; (iii) support good governance among borrowers; (iv) carry out significant policy dialogue; (v) highlight achievements in borrowers’ economies; and (vi) benchmark ADB’s graduation policy.

44. PBA as being currently designed use both top-down and bottom-up approaches in evaluating country performance. Common standardized criteria across all borrowers comprising, e.g., economic growth, or monetary policy stance, is an example of a top down criteria; while specific tariff adjustment, or a specific policy reform in borrower’s economy, or portfolio management would be examples of a bottom-up approach. Under the proposed system, country specific allocation will depend upon the borrower’s per capita gross national product, the size of its population, and performance of its economy. The factors that will be critical in determining country specific performance in Sri Lanka relate to: (i) macroeconomic management; (ii) structural policies; (iii) poverty reduction policies; (iv) protection of environment; (v) governance and public sector management; and (vi) portfolio performance. The development of specific indicators to measure country performance is expected to complete by the end of 2000, in consultations with key Government agencies, policy institutes, and other donors. While some criteria are based on objective quantitative indicators and some others are subjective in nature, the PBA assessment is also based on both immediate past performance and the promise of future performance.

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