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Country Strategy and Program Update 2004-2006: Kazakhstan
VI. Risks and Performance Monitoring and Evaluation
A. Risks
56. The CSP has been prepared against the backdrop of great operational uncertainties that marred the implementation of the COS: (i) the Russian financial crisis that drove Kazakhstan into macroeconomic shock during 1998 and 1999, and (ii) the sharp economic improvement since 2000. The main risks for CSP implementation, and associated mitigating factors are summarized below:
Table 1: Performance Monitoring Indicators
|
Risk and Risk Assessment |
Mitigating Factors |
Value added of IFI assistance is a topic of continuing debate in the Government. Significant increases in oil revenue could tilt the debate in favor of reduced borrowing from IFIs. (High risk) |
Unless oil prices collapse, the external financing gap will not be the anchor or driver of ADB operations. The real driver will be the
Government’s belief that ADB could help it overcome institutional and capacity constraints on increasing public investment to implement the accelerated development strategy. CSP preparation has brought about a greater understanding between the Government and ADB on the rationale for ADB assistance. This understanding that ADB assistance transcends the financing gap must be sustained to mitigate risk.43 |
Structural reforms could suffer major reversals. (Medium risk) |
The Government has stepped back on some reforms recently, even as it has deepened others, to create a competitive modern market economy. Quick financial gains from the oil boom could slow down reforms as has happened in most resource-rich countries. The
Government’s medium- and long-term strategy, however, is reform oriented, and major reforms seem strongly embedded. The
Government’s eagerness to present Kazakhstan as a responsible member of the international community, including through sustained engagement with IFIs, mitigates the risk of major reform reversal. |
The Government has weak institutional capacity. (High risk) |
Extensive support has been proposed under the CSP to strengthen institutional capacities. |
External shocks occur. (Low risk) |
Given the large share of oil production and associated activities in GDP, exports, and fiscal revenue, the collapse of international oil prices could create economic difficulties. The Government has developed a cushion by tightening fiscal management and retaining parts of oil receipts offshore in the National Fund. |
Problems could arise in macroeconomic management. (Medium risk) |
The foremost policy issue is the appropriate management of the very large projected increase in oil revenues. The Government is aware of
this problem, and understands that it can be solved permanently by diversifying the economy and increasing productivity. This
understanding is the basis for the CSP. |
| ADB = Asian Development Bank, CSP = country strategy and program, GDP = gross domestic product, IFI = international financial institutions. |
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B. Performance Monitoring and Evaluation
57. CSP performance will be monitored at two levels:
- At the macro level, assessing progress in achieving the MDGs and monitoring the Government’s poverty reduction program will be the major means to monitor CSP performance. ADB will work with other development partners, particularly UNDP, to prepare follow-up assessments on MDGs. The PPA has adopted government indicators, which are specific and measurable, to measure the performance of the Sector Program for Poverty Reduction (Table 1). An annual PPA review will measure the progress in achieving the performance indicators.44
- At the sector and thematic level, CSP performance will be gauged by the delivery of the proposed forward program of lending and nonlending assistance, including private sector operations, and by the progress in achieving sector and thematic
objectives and reform milestones (Section V, and Appendixes 3, 4 and 5). The annual country portfolio review exercises that began in 2001 (planned jointly with the World Bank) will help improve portfolio performance.
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- Processing of the proposed regional rural development project (Appendix 1, Table A1.10) is a good example of how this risk could be mitigated. This project is being processed in steps. After extensive policy dialogues with the Government, it was provided a small-scale TA (ADB. 2002. TA3898-KAZ: Participatory Rural Sector Planning and Development. Manila) to determine rural development strategy through a highly participatory process, which ADB staff and consultants facilitated. A PPTA is now planned to be implemented in two phases, with substantial participation and capacity building of local government staff. ADB is disadvantaged compared to other IFIs as the Russian Federation and several other former Soviet bloc countries are not ADB members. Often, an appropriate technology for Kazakhstan can only be sourced from these countries due to historical links, which poses significant procurement problems in ADB-funded projects and TAs.
- ADB is helping the national and subnational governments improve performance measurement of the poverty reduction program in particular and the broader development program in general. One TA was approved in 2002. Another TA is being processed for approval in 2003. A third TA is included in the forward program.
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