Countries and Regions

	Table of Contents
p. 6 of 7 BACK | NEXT Executive Summary I. Current Development Trends and Issues II. Assessment of Development Strategies from a Regional Perspective III. Asian Development Bank Development Experience IV. Asian Development Bank Strategy V. Asian Development Bank Assistance Program VI. Risks and Performance Monitoring and Evaluation

Country Strategy and Program 2004-2006: The Pacific

---

V. Asian Development Bank Assistance Program

A. Overall Assistance Level

47. The regional lending program for the Pacific for 2004-2006 comprises three regional lending projects¹⁷ amounting to $8.8 million (average about $2.9 million per annum) to be financed from the portion of the Asian Development Fund (ADF) earmarked for regional projects. The actual ADF allocation will be guided by the requirements of the performance- based allocation policy. Ordinary capital resources (OCR) lending is also an option. In addition, there is cofinancing amounting to $1 million in the lending program. The RETA program for 2004-2006 comprises 13 regional projects amounting to about $4.5 million (averaging about $1.5 million per annum) of assistance from ADB's grant TA funds. The 2004-2006 RETA program includes an additional amount of about $2.0 million in grant assistance from various channel-financing agreements for bilateral and multi-agency trust funds.

B. Asian Development Bank Assistance for the Strategic Priorities

48. The ADB regional program of assistance for 2004-2006 has been developed to implement the new strategy. As described in Appendix 4, the formulation of this strategy and program involved wide stakeholder consultations. While some areas have been considered as appropriate for only country-level operations, the detailed design of each regional project in the focus areas of the regional cooperation strategy and program (RCSP) will be carefully linked with national operations. The focus areas of ADB operations during this period are indicated in Table 4, which is followed by a brief description of the program. The assistance pipeline is given in Appendix 5. Detailed strategies and roadmaps for the focus areas are given in Appendix 6. However, these suffer from the weak database existing in the Pacific. These sector strategies and roadmaps are also based on extensive analysis and consultations. The concept papers for lending and non-lending projects in the 2004-2006 regional program are shown in Appendix 7 and Appendix 8, respectively.

1. Public Expenditure and Investment

49. Weak management of public finances, including imprudent capital expenditure, remains at the core of inefficiencies seen in almost all Pacific countries. Accordingly, supporting regional efforts related to the management of public finances is at the heart of ADB's strategy. In 2004-2006, ADB will focus on the improvement of public financial management by supporting the Pacific Financial Technical Assistance Centre (PFTAC), which provides an efficient and cost-effective way to extend technical support in these critical areas. PFTAC assists PDMCs in improving financial and administrative reforms through capacity building, policy advice, and practical technical assistance in public expenditure management, tax policy reform, and tax administration, among other things. The support to PFTAC is programmed for advisory TAs of $433,000 per annum over a 3-year period (2004-2006), subject to annual review and availability of funds.

2. Private Sector Development

50. The strategy aims to improve the business environment and support private sector development. A major constraint facing private sector development in the Pacific is the lack of a framework for secured transactions, particularly since it is so difficult to use land as collateral for loans under the customary land tenure systems. ADB's 2004-2006 regional program will help improve the environment for secured lending based on international best practices and the specific circumstances of the Pacific. This is expected to facilitate increased lending for micro, small, and medium enterprises, and reduced borrowing interest rates, thereby reducing the cost of doing business. Another major factor constraining private sector development is the weak legal and regulatory framework. During 2004-2006, ADB will also provide assistance to address this weakness. An improved legal and regulatory framework will enhance the general business climate, reduce risks, and send important signals to potential investors. It will also support increased private sector participation in infrastructure provision. The special features of the Pacific require an innovative approach for private sector development. Accordingly, the design of ADB's assistance would aim to suitably modify international best practices to suit the needs of the Pacific. In view of its importance, ADB will closely coordinate with other funding agencies to avoid duplication and to derive full synergy in operations related to private sector development. Details on the strategy and roadmap for private sector development are given in Appendix 6.

3. Transport and Communications

51. All activities and programs contributing to economic and social development and poverty reduction, including private and public finance, trade and commerce, education, and social services are significantly impacted by the price structures and competitiveness of transport markets and communications facilities. In the transport sector, ADB will support promoting (i) competition and efficiency and (ii) reduction in costs related to civil aviation safety. In the case of communications, ADB will focus on development and use of ICT to address a wide range of issues by improving connectivity and reducing transaction costs.

a. Transport Sector

52. Most transport services in the Pacific region are delivered by the private sector. However, private sector entry and exit in these markets are impeded by the inefficiencies and deficiencies in the policy and regulatory frameworks, public management of infrastructure assets, limitations of the infrastructure, and other public procedures providing inadequate incentives and, at times, disincentives for competitive transport operations. The 2004-2006 regional program includes review and assessment of the constraints to efficient transport sector operations in the region. It will prepare a coordinated program of recommendations for reducing the entry barriers and constraints to effective and least-cost transport operations, enhancing the role of the private sector, and improving public governance.

53. Seven PDMCs (Fiji Islands, Kiribati, Papua New Guinea, Samoa, Solomon Islands, Tonga, and Vanuatu) founded the Pacific Aviation Safety Office (PASO) in August 2002, mainly to achieve cost effectiveness in safety-related operations based on economies of scale and shared capacity. It will provide professional aviation safety oversight services and aviation safety audits for commercial clients in the region at a lower cost by engaging regional professional staff and by being located in the region. PASO will enable a cost-effective and systematic improvement in aviation safety in the region. During 2004-2006, ADB plans to extend a regional project loan to support the capacity building of this new institution and finance the initial establishment costs of PASO.

b. Information and Communications Technology

54. Making available to developing countries the benefits of new technology, especially in ICT, is one of the MDGs. This has a greater economic significance for the Pacific than most regions, as ICT has the promise to mitigate the difficulties emanating from isolation, distance, and geographical dispersion. ADB will focus on the use of ICT for improving governance, delivery of public services, enhancing social inclusion, and improving disaster management by increasing connectivity and reducing transaction costs.

55. Delivery of public services to the outer islands and remote communities has been a challenge for the Pacific. The 2004-2006 regional program will develop a regional loan project which will improve delivery of basic services to remote communities based on the use of ICT. This will build on Pacific success stories in this area. Lack of information and transparency underlies weak governance and systemic inefficiencies in the region. Accordingly, ADB's 2004-2006 regional program includes a project preparatory RETA to develop a project for improving governance though the use of ICT. The ICT infrastructure created in this process will improve connectivity in general and be available for other transactions of the governments and people of the region. Thus, it will help reduce transaction costs in the Pacific in many other areas as well.

4. Environment and Natural Resources

56. PDMCs have a high degree of economic and cultural dependence on the natural environment, as well as vulnerability to a wide range of natural disasters and weather extremes. ADB can play an important leadership role by encouraging continued and more effective regional cooperation on topics related to environmental management, sustainability, and risk mitigation issues. Among the natural resources, ADB's strategy assigns high priority to management of fisheries, a common natural resource to all Pacific countries.

a. Environment

57. ADB's 2004-2006 regional program will focus on environmental adaptation to climate change and variability, environmental governance, and renewable energy and energy efficiency. The vulnerability of the Pacific to climate change is high and even threatens the existence of some habitats. Though investment projects needed to adapt to the adverse impacts of climate change and variability must be implemented at the country level, this is clearly a Pacific-wide challenge. Accordingly, this is a priority in ADB's regional program, which aims to develop a regional loan project with cofinancing from GEF. Effective national and regional environmental governance is a prerequisite for sustainable development and to minimize national and transboundary environmental impacts in the Pacific. ADB's 2004-2006 regional program includes an advisory RETA project to improve environmental governance in the Pacific. Many rural communities in PDMCs lack economic and social opportunities because they do not have access to electricity or other modern forms of energy. The commercial development of renewable sources-coupled with higher efficiency of energy use-offers the potential to fill this gap without adversely affecting the Pacific environment. Since this is a common problem having serious environmental implications across the Pacific, especially in outer island settings, it has been included in ADB's program of assistance.

b. Fisheries

58. ADB's objective for the fisheries sector is to foster its prudent management with a view to contributing to the social and economic development in the Pacific. The 2004-2006 regional program has been designed to continue the 2003 regional program, which included an advisory RETA to support improvement in the returns from licensing of foreign vessels in the Pacific. The access arrangements beyond the waters where vessels are based determine the spread of benefits among the parties to the arrangement. ADB's program will support a review of the regional arrangements governing the preferential access of purse seiners and the possibilities of including a large number of longliners. Development of the important tuna fisheries in the Pacific has faced difficulties due to various tax regimes in the region. The 2004-2006 regional program will support a review of these regimes and examine the opportunities for harmonization and development of an appropriate taxation framework for the PDMCs. A harmonized tax regime may also result in higher resource rent for the Pacific.

C. External Funding Coordination and Partnership Arrangements

1. Development Partners

59. ADB assigns high priority to collaborating and coordinating with all development partners and stakeholders. Apart from country-specific assistance, the Pacific has benefited from a generous flow of aid for regional activities as well. Thus, the role of various funding agencies is very important from a regional perspective also. Australia and New Zealand are the top two funding sources of regional projects in the Pacific. Together with the European Development Fund,¹⁸ Canada, France, Japan, and United Kingdom, they account for about 80% of total regional assistance. Other funding agencies include ADB, Food and Agriculture Organization of the United Nations, and the United Nations Development Programme. Other stakeholders in the development of the Pacific include the elaborate network of regional organizations, the private sector, and civil society.

2. Consultation and Coordination Mechanisms

60. ADB uses both formal and informal platforms for consultation and coordination with these development partners and stakeholders. Australia (through AusAID)/ADB high-level consultations are held annually. Periodically, trilateral meetings of ADB, AusAID, and World Bank are also held. Further, there are country-specific consultative group meetings, which offer opportunities for major funding agencies to meet and discuss various issues, including regional-level coordination. In addition, ADB generally participates in other agency meetings that are held from time to time. In general, ADB missions also coordinate closely with representatives of key funding agencies and visit their offices in Australia and New Zealand. In conjunction with its assistance program, ADB will continue to actively pursue cofinancing from official sources to address the important priorities for ADB operations in the Pacific. ADB will maintain its dialogue with PDMC governments and regional organizations to identify appropriate cofinancing for the projects. ADB will closely coordinate with all development partners and stakeholders during the project preparatory phase to avoid duplication and generate synergy. It will also make efforts to establish proper sequencing and complementarities between its own and other funding agencies' operations in areas of shared concern.

61. In the past, ADB has liaised closely with IGOs or regional organizations associated with CROP through participation at various meetings and regular mission visits of staff. ADB will continue to pursue collaboration and partnership with regional organizations in the Pacific. It will also assign high priority to consultations with the private sector. A key lesson from past experience is to keep the local culture and the need for civil society participation in mind in designing specific projects for the Pacific. There is no formal structure of interaction with the private sector and civil society. However, ADB makes substantial efforts to consult them closely through workshops, regular mission visits, and use of alternative channels such as the Kula Fund and the Foreign Investment Advisory Service. ADB missions also coordinate closely with the key NGOs in the Pacific. The opening in 2003 of a new resident mission in Papua New Guinea and offices in Suva and Sydney in 2004 will boost the consultation and coordination activities of ADB.

D. Indicative Internal Resource Requirements

62. The regional work program for 2004-2006 consists of processing 3 loans and 13 RETA projects, out of which 2 are project preparatory TAs. In addition, there would be programming work associated with the preparation of a regional cooperation strategy and program update (RCSPU) in each of the 3 years. The indicative staff requirement for the same is about 9.8 professional staff years over the 3-year period, or an average of about 3.3 professional staff years per annum, which is within the staff resource level earmarked for regional work in the Pacific Department in the recent past. The remainder of the earmarked resources is planned to be devoted to policy dialogue, participation in regional events, funding agency coordination, and consultations with private sector and civil society organizations.

Back IV. Asian Development Bank Strategy	Next VI. Risks and Performance Monitoring and Evaluation