Regions and Countries

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p. 4 of 4 BACK | NEXT I. Current Development Trends and Issues II. Implementation of the Country Strategy and Program III. Portfolio Management Issues IV. Country Performance and Assistance Levels

Country Strategy and Program Update 2005-2006: Bangladesh

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IV. Country Performance and Assistance Levels

A. Proposed Lending Level

26. In 2004, the base case Asian Development Fund (ADF) allocation scenario is applied following assessment of country performance. Macroeconomic management continues to improve. Recent structural and sector-specific reforms are encouraging, though overall portfolio performance needs considerable improvement. In 2004, the resulting base allocation of ADF for Bangladesh is $200 million. The 2004 lending level is being updated on a continuing basis to reflect further developments in ADF resource availability. The ADF allocations for the 2005-2006 lending program are indicative planning figures, and will be subject to revision based on the revised performance-based allocation policy, which is expected to be finalized later in 2004. Based on the findings of ADB’s study on Bangladesh’s borrowing capacity, a 3-year ordinary capital resources (OCR) allocation of $750 million (i.e., $250 million per annum) is considered during 2004–2006, taking into account (i) positive impact of ADB OCR operations on economic growth in general and on Bangladesh’s external position in particular, (ii) the availability of counterpart funds, and (iii) the country’s overall debt service capability to absorb OCR resources. In line with government strategy, OCR lending will be largely used to reduce the nation’s reliance on costly supplier’s credit in energy and transport infrastructure improvement, which in turn will directly contribute to economic growth.

27. The lending program for 2005–2006 concentrates on fewer sectors reflecting ADB’s comparative strengths, strong commitment of the Government to reforms, results-based programming focusing on improving portfolio management, and complementarity with other development partners. The firm lending program for 2005–2006 consists of 12 projects totaling $990 million (comprising $440 million ADF and $550 million OCR) (Appendix 1, Table A1.10). The annual average lending comes to $495 million (including $220 million ADF) compared with the annual average lending of $402 million (including $230 million ADF) programmed in the 2003 country strategy and program update (CSPU). The program accommodates several thematic priorities in terms of loans and TAs, including promotion of the private sector, good governance, gender and development, and regional cooperation.

B. Nonlending Program

28. The TA program for 2005-2006 contains 17 TAs for an annual allocation of $5 million for ADB financing, of which 10 are project preparatory technical assistance (Appendix 1, Table A1.11). The TA program in each year may need to be prioritized in line with the annual TA indicative planning figure for Bangladesh. Given declining ADB TA funds and the Government's pressing need for assistance in both project preparation and institutional capacity building, the Government has agreed to utilize loan funds to prepare large and complex infrastructure projects in the energy and transport sectors in future. Hence, more TA funds could be made available for institutional support for key sector reforms and for promoting public-private partnership in infrastructure development. ADB would continue to mobilize co-financing from other development partners to fill in the funding gap. Several economic, thematic, and sector work has been included to update ADB’s operational focus.

C. Summary of Changes to Lending and Nonlending Program

29. The Gas Sector Development Project that slipped from 2003 is included as standby in 2004 and firm in 2005. Regional Rail Traffic Enhancement is advanced from 2005 to 2004 and renamed as the Railway Sector Development Project, reflecting Government priorities and recent reform progress in the sector. The Southwest Area Integrated Water Resources Management is deferred from 2004 to 2005 due to start-up delays of the PPTA. The Financial Markets Governance Improvement TA loan is deferred from 2004 to 2005 and reformulated to help the Government develop institutional sources of funds, strengthen financial intermediation, and improve financial markets governance. Power Sector Development Program II is advanced from 2006 to 2005 reflecting government priorities and commitment to further sector reforms. Secondary Towns Water Supply and Sanitation is made a standby in 2005 and firm in 2006 to allow ample time to consider lessons learned from the previous project. The Clean Fuel Development Project II is deferred from 2005 to 2006 due to long start-up delays of the ongoing Dhaka Clean Fuel Project. Integrated Flood Erosion and Mitigation Management Project is changed from firm to standby in 2006, reflecting the progress of the ongoing project. Rural Infrastructure Improvement II is included in 2006, reflecting government priorities and the executing agency’s capacity for project design and implementation. Land Administration Reform project is dropped from the 2005 pipeline. The Government is pilot testing cost-effective methods to pursue reforms in the sector.

30. Changes to nonlending pipelines essentially encompass adjustments in the timing of the TAs, reflecting the performance of earlier ADB-financed projects in the respective sectors. In addition, a PPTA for the Gas Sector Development Project is included in 2004 to update project design and sector reforms. The PPTA for Road Sector Development is dropped from the 2004 pipeline and an advisory technical assistance (ADTA) to provide support to the Roads and Highways Department for Safeguard Policy Compliance is included in 2004 instead, to address issues that have been identified as among the key reasons for slow implementation progress of ongoing road projects. An ADTA for Support for Good Governance Initiatives II is included in 2005, to strengthen the ongoing ADB-assisted governance reforms. The PPTA for Post-Literacy and Continuing Education II is dropped from 2006 given recent institutional changes in the sector.

31. For reference, the 2004 assistance program for lending products and the 2004 assistance program for nonlending products and services are provided in Table A4.1 and Table A4.2, respectively.

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