Regions and Countries

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p. 4 of 8 BACK | NEXT Executive Summary I. Current Development Trends and Issues II. The Government's Development Strategy III. ADB's Development Experience IV. ADB's Strategy V. ADB's Assistance Program VI. Risks and Performance Monitoring and Evaluation Appendixes

Country Strategy and Program 2005-2009: Cambodia

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III. ADB's Development Experience

A. Impact of Past Assistance

44. ADB resumed lending to Cambodia in 1992, and as of 31 October 2004 32 public sector Asian Development Fund (ADF) loans amounting to $775.70 million had been approved.¹⁶ Of these, 11 loans ($238.9 million) have been closed and 21 loans are active ($536.8 million). Of the 21 active loans, 17 have been declared effective ($440.50 million), and four amounting to $96.35 million were awaiting effectiveness as the signing of Loan Agreements was delayed by the time taken to form the Government.¹⁷ From 1992 to 31 October 2004, 112 technical assistance (TA) grants totaling $73.64 million were approved. Of these, 34 (30%) worth $18.77 million were project preparatory TAs, and the remaining 78 (70%) worth $54.87 million were advisory and operational TAs, mainly for capacity building and institutional strengthening. ADB has also approved five Japan Fund for Poverty Reduction (JFPR) TAs for $9.9 million. There are currently 30 active TAs, amounting to $17.55 million.

45. ADB’s assistance to Cambodia can be divided into three periods:

1. 1992–1995, implementing an interim strategy focused on relief, rehabilitation and recovery
2. 1996–2000, implementing the 1995 country operational strategy (COS), aimed at shifting from rehabilitation to sectoral development
3. 2001–2004, implementing the 2000 COS

The 2000 COS identified poverty reduction as its overriding objective, to be achieved through

1. sustainable economic growth through agriculture and rural development
2. human resources and social development
3. creating an enabling environment for private sector development

The main crosscutting theme was governance.

46. Since the resumption of lending in 1992, six projects have been post-evaluated by project completion reports and three of these have been further evaluated by project performance audit reports. All of these projects have been rated either successful or highly successful. During this period, 29 TA completion reports (TCRs) and eight TA performance audit reports (TPAR) have also been completed. Of the TCRs, 28 projects were classified as successful or highly successful, and one as partially successful. Of the TPARs, one project was rated as highly successful, five as successful, and two as partially successful. The partially successful TAs were capacity-building advisory TAs. The poor performance in this area has been attributed to insufficient attention to institutional strengthening with the result that the institutions failed to deliver project outcomes.

47. The limited number of completed projects, together with the short time span since completion, makes it difficult to assess the overall impact of ADB’s operations in Cambodia. Outcomes are still evolving. Moreover, given the increased emphasis on sectorwide approaches (SWAps), it is becoming difficult to distinguish development outcomes that can be attributed to ADB interventions alone rather than in combination with those of other development partners. Project outcomes are also affected by exogenous factors such as droughts and floods. Based on outcomes that are still evolving, a recent country assistance and program evaluation (CAPE) for Cambodia concluded that ADB’s overall assistance program during 1992–2002 was responsive and relevant.¹⁸ However, the CAPE recommended that

1. governance be addressed explicitly in the future (not just as a crosscutting theme) so that macroeconomic management can be improved as a prerequisite for sustainable growth
2. more emphasis be given to creating an enabling environment for private sector development to promote SMEs and attract more foreign investment
3. future assistance be prioritized for more effective results, using ADB’s comparative advantage (e.g. sector performance and extent of ADB interventions in that sector relative to other funding agencies), together with the country’s needs

48. The CAPE identified the key strengths and weaknesses of ADB’s overall assistance program. ADB’s strengths begin with responsiveness, as it delivered assistance quickly and flexibly, particularly during the recovery phase of Cambodia’s development in the early 1990s and in the wake of the flood and drought-induced emergencies of 2001–2002. ADB’s program averaged $61 million annually and incorporated loans that focused on establishing the conditions for economic development along with those that addressed poverty directly. The size and balance of the ADB’s portfolio was appreciated by the Government. The CAPE noted the following specific issues.

1. Successful long-term and sectorwide approach. ADB’s pioneering work promoting a SWAp in education was acknowledged. Positive comments were also made on ADB’s long-term assistance to education, health, finance, agriculture, and natural resources management
2. Regional links through GMS. ADB’s lead in improving links between Cambodia and its neighbors through road and power networks, and in strengthening institutional capacity to address issues at both political and operational levels was welcomed
3. Effective and continuous policy dialogue. ADB’s large program and its combination of lending and technical assistance have fostered effective policy dialogue, which is appreciated by stakeholders. ADB has supported the approval of several laws (covering banking, audit, land, and forestry). ADB technical assistance has also supported the Office of the Prime Minister, the Supreme National Economic Council, the National Audit Authority, and the PFM system

49. Among the key weaknesses that reduced the effectiveness of ADB's interventions in Cambodia, the CAPE noted the following:

1. the failure explicitly to address the need for improved governance through public sector reforms as a priority
2. a narrow approach to institutional strengthening, which has led to many capacity-building advisory TAs focusing on providing training for individuals rather than on institutional development and skills transfer
3. a lack of intermediate sector indicators in the country assistance programs to monitor progress towards COS objectives and the MDGs
4. weak aid coordination

Weak coordination resulted in

1. piecemeal results, duplication of efforts and overburdening of the Government
2. reduced opportunities to mobilize cofinancing
3. inconsistencies in the implementation of some policy reforms
4. limited collective policy dialogue with the Government on complex and sensitive issues such as corruption

B. Portfolio Performance and Status

50. As of 31 October 2004, the overall rating of ongoing loans in the portfolio was found to be generally satisfactory, with all loans classified as satisfactory in terms of achieving development objectives. In terms of implementation progress, 17 loans (81%) were "satisfactory", and four (19%) were “unsatisfactory” because they were not yet effective for the reasons outlined above (paragraph 44). These four loans also meant that 19% of the portfolio was considered at risk, which was higher than the ADB-wide average of 18% as of 31 October 2004. Contract award (14%) and loan disbursement (17.8%) ratios as of 31 October 2004 were above the ADB-wide averages (13.3% for contract awards, and 10.9% for loan disbursement) for the same period. In 2003, actual contract awards amounted to $61.88 million (85.08% of the projection for the year) and disbursements were $73.28 million (73.93% of the projection). In 2004, the performance of contract awards (43.4% of the projection for the year) and disbursements (47.4% of the projection), was adversely affected by delays in loan tranche releases caused by the late formation of the Government.

51. Various measures have been undertaken in recent years to improve portfolio performance. These include

1. the holding of joint country portfolio review missions with the World Bank and the Government to coordinate policy dialogue on portfolio implementation and capacity-building issues
2. closer monitoring of ongoing projects followed by bimonthly meetings with project directors and/or project managers to act on impediments to implementation
3. increased delegation of projects to the Cambodia Resident Mission and closer follow up with executing agencies and the MEF by the Resident Mission to expedite approvals on procurement and withdrawal applications

The Resident Mission provides frequent advice to executing agencies and MEF on project implementation issues. Despite progress, the CAPE found that capacity building is still required, mainly to train staff, improve project readiness, harmonize local bidding documents and procedures, and standardize operating guidelines and manuals.

52. There are a number of policy- and project-specific issues that need further attention if portfolio performance is to improve. Cambodia lacks a legal framework for involuntary resettlement, and has only informal procedures and ad hoc institutional arrangements. A draft national resettlement policy was prepared under an ADB TA¹⁹ in 2000 and will be expanded into a subdecree with the assistance of another TA in 2005, during which improved regulatory and implementation arrangements will be mandated, and capacity developed. In the meantime, however, there are significant issues of noncompliance with ADB’s policy on involuntary resettlement and with project loan agreements and approved resettlement plans. Details of noncompliance in seven ongoing projects have been raised with Government, which has acknowledged the seriousness of the situation and is committed to taking corrective action. Other project-specific issues include the enforceability of the approved road fund, the timely release of counterpart funds, the appropriate use of imprest accounts, and further improvements to approval procedures within line ministries and MEF to expedite processing of withdrawal applications and procurement. A number of policy issues, such as the treatment of value-added tax (VAT) on inputs to power generation and the drinking water supply, and the need for a clear policy on the privatization of rubber plantations and agriculture input companies, also need to be addressed.

C. Conclusions and Lessons for the Country Strategy and Program

53. Over 10 years of operations in Cambodia, the CAPE review and other analyses, and discussions with Government and other stakeholders have yielded a number of key lessons. One is the need for patience and perseverance. Cambodia’s reengagement with the international community is just over a decade old. The unique challenges facing the country mean that the bulk of development interventions must be long-term in nature, requiring continuing financing over many programming periods. Given capacity constraints within Government agencies, there is a need to adopt a realistic and pragmatic set of expectations in relation to project implementation, along with a clear understanding of the social and political dynamics of governance and reform.

54. Given that narrowly focused capacity-building initiatives have in the past lessened the positive institutional impact of many advisory TAs, there is a need for a broader approach to institutional strengthening. In future, the focus must be on improving the management, operational, and budgetary systems of institutions as a whole. An institutional diagnostic should be conducted first, and skills transfer and exit strategies formulated. These should be regularly monitored during implementation.

55. Another lesson is that the understanding of corruption is shallow, both by the Government and development partners. Careful analysis of the intensity, nature, roots, antecedents, and parameters of corruption in Cambodia and in comparison with other countries is required for pragmatic and effective anticorruption measures to be formulated. This requires an understanding that reducing corruption is a long-term process that starts with strengthening institutions and stimulating popular opposition to institutionalized corruption.

56. Intensifying coordination among development partners and stakeholders, and strengthening the Government’s capacity to manage aid remain important concerns. Although there are positive signs of improved development partner coordination, more needs to be done to avoid inconsistencies in the adoption of policy reforms and to reduce the Government’s transaction costs.

57. Helping the Government to strengthen links among leading NGOs, community groups, the private sector and line ministries is one way in which better governance, community participation, and service delivery can all be fostered at the same time.

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