Countries and Regions

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p. 4 of 7 BACK | NEXT Executive Summary I. Current Development Trends and Issues II. The Government's Development Strategy III. The Asian Development Bank's Development Experience IV. The Asian Development Bank's Strategy V. The Asian Development Bank's Assistance Program VI. Risks and Performance Monitoring and Evaluation

Country Strategy and Program Update 2004-2006: Kazakhstan

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III. The Asian Development Bank's Development Experience

28. Since joining ADB in 1994, Kazakhstan has received 11 loans²⁷ (for 7 projects) totaling $467 million (of which $407 million is from ordinary capital resources and $60 million from Asian Development Fund), ADB supported reforms and investments in social security, agriculture, education, and transport. Program loans supported agriculture, pension reforms, and macroeconomic stability. Since 1994, 44 TA grants totaling $21.59 million have been provided with broader sector coverage than lending operations; 14 TAs were to prepare loan projects, 30 for advisory activities.

A. Past Assistance Strategy

29. Since approval of the COS—the first full strategy document—in1996, no new loans were approved in 1998, 1999, 2001, and 2002.²⁸ The new economic realities emanating from expansion of the oil sector gave the Government an opportunity to rethink its development strategies. While it was doing so, it was cautious about new investments. The cautious fiscal policy evident in 2001–2002 was also a legacy of the economic shock of 1998–1999. The new economic reality required ADB to adjust its operations. With the country’s new source of substantial fiscal revenue, lack of finance rapidly ceased to constrain poverty reduction.

30. Due to limited new lending since 1997, evaluating the effectiveness of ADB operations under the present COS is difficult. Despite this limitation, ADB helped key COS priorities, including major pension system reform. Other important initiatives during COS period include: an ongoing water resources management and land improvement project in southern Kazakhstan; a basic education project; and a project to rehabilitate the highway between Almaty and Bishkek, which is a key transit and trade route for the entire Central Asia. TA operations of $1.8 million average per year covered a wide range of advisory support, played a key role in institution building, and helped the Government develop a poverty reduction strategy and monitor its implementation. TAs helped ADB sustain policy dialogue with the Government, particularly in education and agriculture.

31. The COS had recommended that ADB develop a program to support private sector in close consultation with EBRD. However, no private sector operation could start even though ADB did develop a pipeline of support. Absence of the Government’s endorsement of the private sector framework agreement prevented ADB from launching private sector operations. ADB has maintained close contact with EBRD, IFC, and the private sector.

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B. Portfolio Status

32. The active portfolio of lending products is fairly small (Appendix 1, Tables A1.6–A1.8). Of the 11 loans provided since 1994, 6 were active at the end of 2002. Since then one²⁹ has closed and activities under two³⁰ (for one project) have ceased. Thus, only three loans (two projects) amounting to $92 million are ongoing. Portfolio performance has been mixed. The contract award ratio for 2002 was 27.9%—higher than ADB’s average of 22.6%. Disbursement ratio during 2002 was 8.1%—lower than the ADB-wide average of 22.2%. The disbursement ratio in 2000–2001 was higher than the ADB-wide averages. The shrinking portfolio has made the disbursement ratio overly sensitive to developments in individual projects. The key difficulties experienced in portfolio management are the following: (i) delays in compliance with loan effectiveness conditions and recruitment of consultants, (ii) weak project management capacity, (iii) insufficient attention to monitoring and evaluation of projects, and (iv) coordination problems among ministries. High turnover of government staff exacerbates the shortage of experienced project management staff and lack of familiarity with ADB procedures. Annual country portfolio reviews and periodic seminars/training sessions for Kazakh officials will help improve portfolio performance. One reason that the Government prefers to avail itself of IFI-funded projects is that it views them as instruments to build in-house project management capacities.

33. In 2001 the first post-evaluations were completed for the Special Assistance Project (SAP)³¹ and Agriculture Sector Program (ASP).³² These operations, which provided fast-disbursing assistance to support the balance of payments and reforms, have been rated successful, overall. SAP funded the import of medicines, medical equipment and spare parts, and critical imports by private enterprises. ASP helped initiate development of a competitive and market-based agriculture sector, thereby strengthening the reform process (Appendix 1, Table A1.9). Post-evaluation reports are also available for four advisory TAs, one of which was attached to SAP.³³ Three advisory TAs were rated successful whereas the attached TA was largely unsuccessful. The following are key findings and lessons: (i) TA scope should be simple and achievable within a timeframe, (ii) low public sector salaries hinder sustaining TAs’ capacity-building benefits due to high turnover of staff, and (iii) ADB should respond to suggestions from executing agencies for modifications in TA priority and scope.

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C. Conclusions and Lessons for the Country Strategy and Program

34. The following conclusions and lessons can be drawn for the CSP:

1. Weak institutional and strategic planning capacities—and not lack of financing— are foreseen as constraints on the accelerated development strategy. In the absence of strategic planning and investment and outcome monitoring, particularly in the social sectors, using additional resources without defining outcomes and linking investments to them may not lead to commensurate improvements. ADB assistance, therefore, should be packaged to strongly support building local capacities.
2. The key CSP objective should be to help Kazakhstan bridge the gap between the emerging growth dynamism and the ability to achieve the MDGs.
3. Another CSP objective should be to improve the climate for private investment in the non-oil sectors. Several hurdles have already been identified: institutional and behavioral constraints (reorienting institutions and human behavior to a market economy); and paucity of quality infrastructure, long-term finance, and skills.
4. The CSP should comprise a modest lending program in a few selected sectors. The Government’s borrowing strategy eliminates lending to high-impact social sectors. The ADB strategy should be to focus on knowledge creation and policy support in selected social sectors. A series of brief policy notes on critical sector issues could be a pertinent instrument of ADB support.
5. While CSP preparation improved understanding within the Government and between ADB and the Government, uncertainties witnessed since 2000 in processing programmed projects could persist in the medium term. Despite Kazakhstan’s need for development assistance, sentiment in parts of the Government may turn against even a modest amount of borrowing if the oil sector performance turns out better than anticipated. The reverse may happen if oil prices collapse. Annual updates of the CSP must deal with potential uncertainties.

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