Regions and Countries

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p. 3 of 4 BACK | NEXT I. Development Situation II. Implementation of the Country Strategy and Program III. Portfolio Management Issues IV. Country Performance and Lending Levels

Country Strategy and Program Update 2002-2004: Kyrgyz Republic

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III. Portfolio Management Issues

A. Portfolio Performance Implementation

18. ADB activities in the Kyrgyz Republic began in 1994. As of end-December 2000, ADB had approved 18 loans for 14 projects totaling $452.2 million, all from the Asian Development Fund (ADF). In addition, 42 TA grants have been approved, amounting to $26 million. Five loans have been closed and 16 advisory TA projects have been completed. Despite economic difficulties, fiscal constraints, and institutional weaknesses, ADB’s portfolio in the Kyrgyz Republic has performed well till now, and the implementation of approved loans and TAs has proceeded generally on schedule. ADB’s portfolio of projects in the Kyrgyz Republic is characterized by a significant proportion of policy-based lending (around 40 percent). ADB’s operations have grown in complexity and magnitude and a sizable portfolio of ongoing projects has been built up. Detailed loan portfolio performance indicators are in Appendix 3.

19. The following constraints have traditionally limited the country’s absorptive capacity: (i) the scarcity of counterpart funds for project-type investments; (ii) an administrative and implementation structure with weak institutional capacities; (iii) problems in formulating coherent development and sectoral policies both at the central and the local government levels; (iv) lack of experience with policies and procedures of external aid agencies; and (v) communication and language barriers. Considerable emphasis will need to be placed on capacity building and on strengthening the Government machinery, particularly for implementing development projects. Capacity building and human resource development will need to be key components in ADB-supported investment projects and TA. There have also been delays on the side of the Government to fulfill conditions to make ADB loans effective.

B. Counterpart Funding

20. Budget constraints have traditionally affected the implementation of ongoing projects in the country. The difficult fiscal situation has become very severe and resulted in new limits to the PIP, which will have a significant impact on the implementation of ongoing projects. ADB initiated a dialogue with the Government two years ago to prioritize the projects in the PIP and to allocate more of the scarce resources to better performing and priority projects. It extended a TA⁷ to assist the Government in this regard and to improve the management of the PIP. Findings of this study indicate that fiscal constraints and implementation problems will seriously affect ongoing and future projects over the next several years and will call for a very selective approach to lending by ADB and other aid agencies in line with the thrusts of the CDF and NPRS.

21. The PIP study has found that scope exists for rationalization by reducing the size of many of the slow-moving projects and reducing their allocations. This would make room for new and priority projects more in keeping with emerging CDF and NPRS directions. Given the annual PIP limits and slow implementation of many projects, adding on new lending in the same volumes as before, without pruning some of the poor performing and delayed projects and limiting funding to them, would affect the implementation of all projects. In view of the recent findings of the PIP prioritization exercise and the need for restructuring of ongoing projects to the aid community, the Government and the sources of aid need to make the necessary adjustments to operations.

C. Monitoring and Evaluation

22. The performance of ongoing projects is monitored closely by ADB through regular review missions and the assistance of the Kyrgyz Resident Mission. The Country Portfolio Review Mission planned for later this year will assess performance and discuss whether any adjustments are necessary to individual projects because of budget constraints and the PIP limits. The Government’s capacity to monitor and evaluate the implementation of externally assisted projects is of particular importance now that the need has arisen to allocate more of the scarce resources to the better performing and priority projects. An ongoing ADB-financed advisory TA (TA 3204: Strengthening Aid Coordination and Management) will focus on improving the Ministry of Finance’s capacity to monitor and evaluate foreign-assisted projects.

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