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Country Operational Strategy - Cambodia : III. External Development Assistance
A. Existing Strategy and Impact Assessment56. Soon after the October 1991 signing of the Paris Peace Accord, ADB resumed operations in Cambodia, developing an interim strategy to assist immediate rehabilitation needs in accordance with the efforts of UNTAC. After the May 1993 elections and the departure of UNTAC, the strategy was revised to include assistance for reconstruction and development efforts. As conditions continued to improve and the Government formulated a development strategy, ADB framed a formal Country Operational Strategy (COS) in 1995 to (i) support capacity building, (ii) promote economic growth, (iii) enhance social sector activities, and (iv) strengthen natural resource management. Implementation of that COS was affected by interruption of new technical assistance (TA) and loan project processing that accompanied the collapse of the coalition Government in July 1997. With the formation of a new coalition Government in late 1998, ADB returned to normal operations and began preparation of a strategy to reflect changes in conditions in Cambodia and the region, as summarized in Chapter I. 57. To implement the interim 1992 and formal 1995 strategies, ADB approved 65 TAs (grants) amounting to about $49.6 million (Appendix 3, Table A3.1) and 12 concessional loans to Cambodia for a total of $374 million (Appendix 3, Table A3.2) between 1992 and 1998. ADB's operations in Cambodia are still young (as of the end of 1999, only one of the loans had been closed), operations from 1992 through 1995 in support of the interim strategy of rehabilitation were of a unique character, and the 1995 COS implementation was interrupted in 1997. Thus, this section will not analyze the developmental impact of the two strategies separately but rather assess the lessons to be learned from the program as a whole in the areas of capacity building, economic growth, and social sector support. 1. Capacity Building58. Of the 65 TAs implemented by ADB since 1992, 51 were for advisory and operational purposes, mainly in macroeconomic management, project implementation, and sector strategic planning. The $3.9 million 1992 Strengthening Macroeconomic Management (SMM) TA established key roles for ADB in assisting capacity building in the areas of economic planning, money and banking, public finance, and statistics. Subsequent TAs continued capacity building work in each area. 59. In the area of economic planning, SMM was followed by development capacity building TAs (phases I and II) amounting to almost $1.8 million. ADB assisted the establishment and strengthening of a public investment planning unit within the Ministry of Planning (MOP), the framing of the SEDPI, and the production of four three-year rolling public investment programs (PIPs). Despite this large investment and record of accomplishments, capacity for development planning is still weak in Cambodia. 60. The effectiveness of ADB interventions in development planning was hampered by a number of factors. First, at a time when market reforms were redefining the role of MOP, the minister and other key senior staff were transferred to the National Bank of Cambodia (NBC) and there was a subsequent delay in naming a new minister. Second, coordination problems between MOP, responsible for development planning; the Council for the Development of Cambodia (CDC), responsible for aid coordination; and the Ministry of Economy and Finance (MEF), responsible for the budget, hampered implementation of the PIPs. Third, delays in processing and implementing the phase II TA weakened the credibility of MOP and its ability to retain staff trained under the previous TAs. 61. In money and banking, two capacity-building TAs totaling $740,000 followed SMM. Through SMM, ADB assisted in the reorganization of the central bank to meet the needs of a market economy through policy advice on the drafting of a new banking law and the creation of units within NBC to generate and analyze monetary, balance of payments, and financial assets statistics. Through the subsequent TAs, ADB supported the establishment and strengthening of the Center for Banking Studies. Overall, ADB's assistance in this area has been modest and focused primarily on training. Because Cambodia started from such a low level of human capital, the Center for Banking Studies is still inadequately prepared to meet the training needs of the banking sector. 62. In public finance, SMM provided a fiscal expert to advise and assist MEF in all aspects of fiscal management. A subsequent 1996 TA was for MEF to develop an independent internal audit capacity through establishment of a National Audit Authority, training, and assistance in developing audit standards. Another 1996 TA was for MEF to build capacity for external aid management through a functional review of the External Finance Department and the provision of equipment, technical advice, and training. Each TA made a good beginning in building capacity from a very low base. 63. In statistics, a $1.2 million 1994 Statistical System Development TA followed SMM. ADB assisted in the rebuilding of the Cambodian statistical system through support for MOP's National Institute of Statistics (NIS). ADB built its capacity to conduct surveys and assisted in numerous surveys, including the first socioeconomic survey and the ongoing price, household, establishment, and labor force surveys. National account estimates were produced with ADB assistance. A major focus of ADB assistance in this area was long-term capacity building through on-the-job training, in-country training, and foreign scholarships. Despite these extensive capacity-building efforts, the effectiveness of ADB assistance was diminished when implementation of the 1994 TA was interrupted, delaying national account estimates for 1997 and 1998 until early in 1999. The $1 million Statistical System Development (Phase III) TA was approved in November 1999. 64. In addition to TAs designed to improve macroeconomic management, ADB provided over $13 million in TA support for multisectoral project implementation and other related areas such as environmental impact assessment and procurement. Moreover, a capacity-building sector TA of over $14 million was provided. As a member of the Greater Mekong Subregion (GMS), Cambodia has benefited from TA addressing issues of common regional interest in transport, energy, tourism, environment, human resource development, trade facilitation, and investment under the GMS Economic Cooperation Program. 65. Taken together, ADB's efforts at capacity building through TAs, starting from very poor initial conditions, made substantial progress. However, institutional weaknesses remain endemic. The success with which ADB assistance can generate sustainable institutional capacity will be affected by several factors. These include, on the part of ADB, the level of commitment to long-term training and the degree of continuous and coordinated TA support to key related activities. On the part of the Government, the important factors are the amount of recurrent expenses budgeted for activities initiated under ADB TAs, and the extent to which civil service reform creates incentives for trained personnel to remain with the agency after the completion of the TA program. 2. Economic Growth66. The $67.7 million Special Rehabilitation Assistance Loan (SRAL) (Loan 1199-CAM[SF]), approved on 26 November 1992, was the first loan approved during the current period of operations in Cambodia. With components in transport, energy, agriculture, and education, this loan was designed to assist in rapid rehabilitation efforts. In transport, repairs on 560 km of the primary road network, including 23 bridges, were undertaken. In addition, minor repairs of the rail system and Krong Prean Sihanouk Port were undertaken. The energy component focused on rehabilitation of the Phnom Penh power-generating and distribution systems. The agriculture component rehabilitated four irrigation schemes covering 9,620 ha rather than the 50,000 ha envisioned at appraisal because of lack of readily available subprojects and lack of capacity at the Ministry of Agriculture, Forestry, and Fisheries (MAFF). This component also provided 18,000 tons of fertilizer for sale to farmers. 67. This project, which was rated satisfactory and closed on 26 November 1997, produced several lessons. First, low capacity at implementing agencies means that ADB should include adequate consulting services or further capacity building assistance in planning, procurement, and project management to ensure effective project implementation. Second, ADB should encourage the strengthening of policies, procedures, and resource provision for operation and maintenance at the line ministries involved in ADB projects. Third, project scope should carefully consider sector institutional and technical capacity. Fourth, comprehensive sector plans to be developed should include policy dialogue and training to avoid ad hoc investments.18 68. SRAL was followed by the $28.2 million Power Rehabilitation Project (Loan 1345-CAM[SF]), the first loan approved under normal operations in December 1994. The project has achieved its objectives of increasing the generating capacity in Krong Prean Sihanouk and of expanding and rehabilitating the distribution facilities in Krong Prean Sihanouk, Siem Reap, and Phnom Penh, as a result of which electricity losses have been significantly reduced. The project was completed within budget and on time, with the exception of the construction of a training center for staff of the State-owned electricity company, Electricitè du Cambodge (EdC), projected in late 1999 to be six months late. EdC was given autonomy in 1997 and experienced numerous difficulties in making the transition to sustainable operations, including delays in producing satisfactory financial audits, until late 1999. EdC still had a weak financial position in late 1999, but was making modest progress toward improving the efficiency of operations. 69. The $25.1 million Rural Infrastructure Improvement Project (Loan 1385-CAM[SF]), approved on 28 September 1995, was only about 30 percent complete in late 1999, partly because of a 15-month delay in consultant selection. Designed to improve the living conditions of about 600,000 people in six provinces in the southeast through labor-based rural infrastructure rehabilitation and improvement, the project had completed 281 km of earthworks, 136 km of laterite surfacing, and 80 wells as of late 1999. A key to the success of the finished project will be government commitment to maintenance since these types of roads require constant upkeep in the Cambodian climate. 70. Cambodia has received only one program loan. The $30 million Agricultural Sector Program (Loan 1445-CAM[SF]), approved on 20 June 1996, was designed to provide institutional support to encourage agricultural reform, including land reform, improved agricultural extension activities, liberalized and increased access to input and output markets, and rural road maintenance. Slow progress in meeting tranche conditions, partly because of political events in 1997 and 1998, delayed the release of the second tranche, which was expected in the fourth quarter of 1999. 71. The $15 million Siem Reap Airport Project (Loan 1503-CAM[SF]) was approved on 12 December 1996. The goal was to improve foreign exchange earnings by increasing the capacity of the country to cater to tourists visiting the Angkor Wat historical site. The project experienced significant procurement irregularities, which ADB has taken action to address. On 15 December 1998, ADB approved the $40 million GMS: Phnom Penh to Ho Chi Minh City Highway Project (Loan 1659-CAM[SF]). The loan was made effective only in November 1999 because of delays in finalizing the resettlement action plan. The $68 million Primary Roads Restoration Project (Loan 1697-CAM[SF]), designed to restore major portions of National Roads 5, 6, and 7, was approved in September 1999. 3. Social Sector Support72. The education component of SRAL was designed to focus on secondary education to complement the support for primary education being provided by the United Nations Children's Fund (UNICEF). The project component renovated 67 secondary schools, provided paper for textbook printing, and assisted rehabilitation efforts at Phnom Penh University and other institutes of higher learning. The SRAL was followed by the $20 million Basic Skills Project (Loan 1368-CAM[SF]), approved on 30 August 1995. It was about 60 percent complete in October 1999 despite implementation delays. The project's development objectives were to (i) develop training in basic skills needed for construction, tourism, and health provision, (ii) provide income-generating skills to vulnerable groups, and (iii) improve training capacity. The $20 million Basic Education Textbook Project (Loan 1446-CAM[SF]), approved on June 1996, is rated highly satisfactory. The project's purpose is to improve the quality of basic education by ensuring equitable access to textbooks and by enhancing the efficiency and sustainability of textbook supplies through publishing reform. 73. The $20 million Basic Health Services Project (Loan 1447-CAM[SF]), approved on 20 June 1996, was to construct and equip 251 health centers, renovate 75 existing facilities, build capacity at district health offices, and introduce reforms designed to ensure health center sustainability. About 50 percent complete, the project experienced implementation delays and a significant reduction in scope but is proceeding more or less satisfactorily. The $20 million Phnom Penh Water Supply and Drainage Project (Loan 1468-CAM[SF]), approved on 26 September 1996, experienced some implementation delays, but progress is satisfactory. The project was designed to benefit over 1.5 million people by 2005 by reducing the incidence of waterborne diseases, reducing the time and cost of obtaining drinking water, and improving family hygiene and health. The $20 million Provincial Towns Improvement Project (Loan 1725-CAM[SF]), approved in December 1999, will upgrade water supply facilities in six provincial towns as well as sanitation facilities in Krong Prean Sihanouk. 4. Natural Resource Management74. There have been no loan projects in this area and ADB assistance has been through TA grants. Major activities include a TA for strengthening environmental impact assessment procedures and capabilities, and a TA for institutional strengthening and expanding environmental impact assessment capabilities. In addition to the project preparatory TA for sustainable forestry management, approved in December 1998, there were two ongoing regional TAs in late 1999. These were TA 5771-GMS: Poverty Reduction and Environmental Management in Remote GMS Watersheds, for $3,800,000, approved on 31 December 1997, and TA 5822-GMS: Protection and Management of Critical Wetlands in the Lower Mekong Basin, for $2,070,000, approved on 22 December 1998. 5. Lessons Learned from Past ADB Operations75. Because ADB was the first multilateral financial institution to resume operations after the 1991 peace settlement, it was able to provide key emergency assistance and take a lead role in key sectors such as transport, agriculture, and education. Although it is still too early to assess the developmental impact of ADB assistance to date, some operational lessons can be gleaned from the preceding cursory analysis. In general, project management capabilities are still inadequate. 76. Constraints to improving project implementation efficiency are (i) shortage of skilled counterpart staff, (ii) lack of project preparation and implementation experience, (iii) inadequacy of financial resources, (iv) lack of knowledge on ADB's operational policies and procedures, and (v) poor governance. The Country Programming Review Mission (CPRM) of late 1998 further highlighted the need for careful consultant recruitment, effective release mechanisms for counterpart funds, and identification of full-time counterpart staff. Further, project designs need to be kept simple, project scope must be realistic, and projects need to be closely monitored. The implications for future operations are that ADB needs to devote substantial resources to build capacity in overall economic management and in sectors in which ADB will operate. ____________________
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