Regions and Countries

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p. 9 of 11 BACK | NEXT Executive Summary I. Development Agenda II. Implementation of the Country Strategy and Program III. ADB's Strategy IV. Operational Approach V. Three-Year Assistance Program VI. Performance Monitoring and Evaluation

Country Strategy and Program 2002-2006: Pakistan

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IV. Operational Approach

A. Modalities of ADB Assistance

75. Policy-Based Operations. During the last two years, policy loans in key areas such as energy, agriculture, and governance have constituted a major share of ADB lending to Pakistan. Because of the Government's extensive reform agenda with governance as its cornerstone, and its demonstrated political will to implement these reforms, the emphasis on policy-based operations will continue. A more flexible process approach to institutional reform will be adopted to avoid limitations of a "blueprint" approach that leaves little scope for learning and adaptation during implementation, and adversely affects ownership of reforms. Also, to deepen the reform process and ownership at all levels of Government, ADB will commence policy-based lending with provinces, in particular focusing on public resource management and realigning the provincial administrative structure in light of the ongoing devolution program.

76. Project and Sector Lending. Project loans to individual provinces will be favored over umbrella-type countrywide projects with the federal Government. Every effort will be made to ensure that lending reinforces the particular reform theme agreed with the respective provinces, such that policy-based operations, investment projects, and TA operations are mutually supporting. Thus provincial policy-based operations as well as the individual projects such as district school management support, decentralized social services, and rural development projects will be designed to support the devolution program. Sector development projects will be designed to augment the governance reform program being undertaken at the national and provincial levels.

77. TA Operations. Advisory TA operations will focus on the strategic priorities with a particular emphasis on governance, to ensure the best use of scarce TA resources. Three types of advisory TA will be provided. First, TAs will be used to build capacity through institutional analysis to support change, system development, and skill training. Second, TAs will support strategically guided partnerships with civil society, NGOs, and the private sector to support monitoring (i) to establish accountability (audit, legal compliance, etc.) for resources committed under the partnership between ADB and federal, provincial, and local governments; (ii) to determine performance necessary to underwrite timely tranche releases and to track policy reforms; and (iii) to learn policy lessons and build ownership during implementation of process-based policy loans. Third, TAs will build constituency and raise awareness by proactively demonstrating benefits of initiatives in crosscutting areas such as gender, environment, and regional cooperation. Given the scarcity of TA resources, bilateral sources of funds will be actively sought. Also to conserve TA resources, to the extent possible, project preparatory TAs will be programmed on an as needed basis, and not automatically for every proposed loan. In all cases, project preparatory TAs will be required to pay particular attention to governance issues, and to design projects that comply with the governance focus and thematic priorities in the CSP.

78. Economic and Sector Work. In Pakistan, over the next few years, policy and institutional reforms will be of great importance, and therefore, the scope of economic and sector work (ESW) will have to be expanded. The proposed ESW is described in para. 89 and Appendix 5. ADB will make efforts to tap the skills of local research institutes, academic institutions, and private sector. The results of ESW will be widely disseminated and where possible be used to promote networking among researchers, academics, government, and private sector. As sector policy and institutional reforms are essential for achieving sustainable development impact, ESW will guide the sector priorities and issues, and assist in formulating sector strategies and project design.

79. Private Sector Operations and Risk Guarantees. Restoring private sector confidence, and reviving foreign direct investment are critical needs of Pakistan. Private sector operations (PSO) will focus on rural finance, agribusiness, and SMEs. PSO will also extend support to capital market development, restructuring and privatization of selected state-owned financial institutions and other state-owned enterprises, and promotion of private sector participation in the gas sector as well as other economic and social infrastructure. PSO will also explore the use of partial risk guarantees, particularly for foreign investors.

B. Participation of Civil Society, Private Sector, and Local Governments

80. The ADB strategy highlights the importance of effective links between the state, civil society and private sector. Each of the key policy reform programs in the CSP will deliberately target specific dimensions of these relationships. They will complement judicial, police, and administrative, and institutional reforms being supported by ADB and will focus on relations between local governments and civil society (chambers of commerce, trade associations, community-based organizations, and NGOs; and between local governments and the private sector (private contractors, service providers, entrepreneurs, etc). Key governance-focused programs will assist government to define a positive regulatory environment for civil society and private sector activities. They will also, from the viewpoint of private sector stakeholders, support activities to increase the access of disadvantaged sections of the population to commercial, market reforms.

C. Strengthening Government Capacity

81. ADB operations will aim to strengthen government capacity in three linked domains: (i) establishing and administering the policy, legal, and regulatory environment necessary to support reform activities; (ii) instituting the corresponding institutional arrangements, including systems to articulate regulations, and designing incentives (pay, training, reward systems, etc) and sanctions (accountability, interdiction, compliance, enforcement) for ongoing implementation of reform commitments; and (iii) training, retooling, and equipping to enable effective implementation of policies, regulations, and institutional arrangements for effective management of the development process and delivery of public services.

D. Aid Coordination

82. With the participation of all major multilateral and bilateral funding agencies including ADB, the country's external assistance program is formulated within the framework of the Pakistan Development Forum under the leadership of the Government. The planning and assessment of external assistance is well coordinated between the Government and the funding agencies, and aid coordination is well structured and effective. In addition to the Pakistan Development Forum, lead sectoral assistance agencies regularly hold aid coordination meetings, such as the core groups on governance, gender, and forestry. At the field level, the Pakistan Resident Mission is responsible for aid coordination activities, while at ADB headquarters, this activity is undertaken by South Asia Operations Coordination Division.

83. Over the past few years, the operations of ADB, IMF and World Bank, have been closely synchronized. ADB's program assistance forms part of the overall reform and financing package coordinated by IMF. This was the case under the standby arrangement successfully concluded in September 2001. Close consultations were again held with IMF when the PRGF was being finalized. IMF approved the PRGF on 7 December 2001. While IMF assistance focuses on macroeconomic reforms, ADB's assistance focuses on specific structural reforms, as well as sectoral investments. In addition, the Pakistan Resident Mission regularly holds aid coordination meetings for projects being processed by ADB. In January 2002, the Government held the Human Development Forum where it outlined its strategy and priorities for the development of the social sectors. These are in synergy with the socially inclusive development plank of this strategy.

84. World Bank. Currently, the World Bank is the second largest multilateral assistance agency in Pakistan. The World Bank's assistance to Pakistan presently is all International Development Association (IDA) funded and averages $500 million-$600 million per annum. The objectives of World Bank assistance are to assist the Government in achieving macro stability, improving human development, building an environment for private investment and sustainable growth, and strengthening governance and institutions. Most of recent World Bank assistance to Pakistan has been in the form of single-tranche (Appendix 2, Table 2.5), structural adjustment credits on IDA terms. ADB-World Bank coordination is strong, with an informal division of labor between the two organizations' operations. However, given the large resource needs of some key sectors, it often becomes necessary for both to operate in the same sector. To avoid duplication of policy reforms, the two institutions share the policy matrices of structural adjustment credits and program loans.

85. Bilateral Assistance. Major bilateral assistance to Pakistan is provided by Canada, Japan, United Kingdom and US. Prior to May 1998, Japan provided the single largest amount, with average annual assistance of some $500 million. Among others, Japanese assistance financed projects in physical infrastructure, energy, agriculture, education, and communication sectors. Subsequent to the nuclear explosions of May 1998, most bilateral programs were suspended. The events of September 2001 and Pakistan's decision to join the campaign against global terrorism resulted in a phased resumption of bilateral assistance (Appendix 2, Table A2.4). While Japan has announced the suspension of the ban on assistance to Pakistan and has provided assistance for budgetary support, it and many other assistance providers are in the early phase of preparing a development assistance program. The US has already provided assistance for budgetary support and in July 2002 US Agency for International Development plans to resume its operations in Pakistan focusing mainly on the health and education sectors. Department for International Development of the United Kingdom has announced that its assistance will focus on creating the economic conditions for poverty reduction, strengthening health systems, and improving quality and management of education.

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