Countries and Regions

	Table of Contents
p. 18 of 20 BACK | NEXT I. Country Performance 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

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VII. ADB’s Operational Program

93. During the 1990s the average annual ADB public sector lending to Sri Lanka amounted to $141 million. In the first lending cycle of the decade (1990-1992) the average annual lending was at its highest at $171 million. Thereafter, it declined to an average in the 1996-1999 period of $132 million. All the lending has been on ADF terms. In the mid-1990s the lending level declined because of a weakening in portfolio performance. However, in the last few years (1996-1999) portfolio performance improved to be among the best of ADB’s DMCs and there was also a strengthening of the lending pipeline. The rise in the lending level in these years generally reflects the sound macroeconomic performance and increased absorptive capacity of the country.

94. In 1998, ADB’s public sector lending amounted to $185 million, which was one of the highest annual commitment levels since ADB lending operations began in the country. In late 1998, Sri Lanka was graduated to B1 country status³⁶. In addition, ADB faced constraints on the availability of ADF resources, which necessitated a reduction in ADF lending to several ADF eligible DMCs, including Sri Lanka. However, in recognition of the sound country performance and the improvements made in the implementation of the existing loan portfolio, about $149 million was approved in 1999. For 2000, a lending level of $209 million ($194 million ADF and $15 million OCR) is envisaged. Despite the reduction in the overall lending level from that achieved in 1997-1998, the planned project pipeline has been largely retained through the judicious use of cofinancing to bridge the gap in project financing³⁷. In the medium-term, ADB is expected to remain one of the three largest donors in Sri Lanka, together with Japan and the World Bank.

95. The proposed lending program during 2001-2003 consists of 14 projects totaling $600 million, or an average of about $150 million ADF per year and $50 million OCR per year. The proposed lending level is consistent with the country’s need for continued external concessional assistance and based on the satisfactory portfolio performance achieved in recent years. The OCR lending is directed to only revenue-generating infrastructure projects and program loans that promote policy reforms and private sector growth due to the vulnerability of the country’s key exports to market fluctuations, high external debt and the continuing fiscal constraints. However, the actual lending levels will depend on the country and sector performance in line with ADB’s policy on performance based allocation (paragraphs 43 and 44). This is to ensure that future levels of ADB investments will be commensurate with the necessary policy and institutional environment of the country to generate and sustain desired development impact.

96. In line with the ADB’s overarching objective of poverty reduction, an important feature of the lending program is the inclusion of projects with scope to maximize poverty impact. The locations of almost all of the programmed social and infrastructure projects are within the poor concentrated areas, and where security permits, the scope of the projects has included the North and Eastern Provinces. Out of a total of 14 projects over the period 2001-2003, projects targeting core poverty intervention constitute 50 percent by the number of projects and 48 percent by the total value.

97. Over the period 2001-2003 the sectoral distribution of the proposed loan program (by number of loans) is: agriculture and natural resources 36 percent, social infrastructure 29 percent, transport 14 percent, energy 7 percent, and industry and finance 7 percent, and governance 7 percent. The sectoral focus of the program is consistent with the objectives of ADB’s operations in Sri Lanka and will assist in meeting the Government’s development priorities and commitment to sector reforms, ADB’s role as a long-term development partner, and the assistance provided by other donor governments and agencies. The program has a narrower sector focus than in the past, linkages between projects to increase the synergy effect of projects, and higher priority for sectors where ADB is the lead dialogue partner for institutional and policy reforms. All of the projects at least in part address crosscutting concerns.

98. The TA program comprises projects that reflect the national development priorities of the Government and the strategic development objectives of ADB. The TA program aims to help sustain a robust pipeline of quality projects for ADB financing with at least four PPTAs per year and meanwhile, providing support for financial sector developments and institutional capacity building for improved management efficiency and support for policy reforms to promote private investments in infrastructures. The TA program for 2001-2003 includes 25 TAs with a total value of $19.6 million (13 PPTAs totaling $10.8 million and 12 ADTAs totaling $8.8 million), which averages about $6.5 million per annum. The TA program for 2002 and 2003 will be further refined during ADB’s Country Program Confirmation Mission in 2000, following further consultation with the Government based on the results of planned sector strategy studies in several sectors. Details of the Loan and TA program are provided in Appendixes 4 and 5. The project profiles for the 2001 projects are at Appendix 6.

99. Although portfolio performance has improved in recent years, project implementation delays still exist in various forms including delays in procurement and recruitment of consultants. ADB therefore needs to follow a strict performance-based approach in determining the level of new ADB assistance in Sri Lanka. ADB is also paying more attention to the policy environment in which projects are formulated, in addition to the performance of specific projects. In this regard, crosscutting issues, such as governance, capacity building and achievement of development objectives will be more intensively monitored and taken into consideration in preparing the operational program of the ADB. Furthermore, postevaluation findings will also be considered prior to approval of new projects.

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