Regions and Countries

	Table of Contents
p. 4 of 8 BACK | NEXT Executive Summary I. Current Development Trends And Issues II. The Government’s Development Strategy III. ADB's Development Experience IV. Strategy For ADB Support To PNG V. ADB's Assistance Program VI. Risks And Performance Monitoring And Evaluation Appendixes [ PDF ]

Country Strategy and Program 2006–2010: Papua New Guinea

---

III. ADB's Development Experience

A. Impact of Past Assistance

53. ADB’s previous country strategy for PNG was prepared in 1999, following (i) a period of economic decline in PNG, (ii) no new ADB lending from 1993 to 1997, and (iii) very weak portfolio performance. Based on sound policy direction from the then-incoming Morauta government, the strategy¹ set out a focus on strengthening governance and public sector management, including downsizing the public sector; supporting the agriculture and fisheries sectors; improving transport infrastructure; promoting social development (health, skills development, and water supply); and attention to gender and population. This focus continued through successive CSP updates until 2003 and 2004, by which time portfolio performance problems were again apparent and the Public Service Program Loan had stalled. In response, the CSP updates prepared in 2004 and 2005 emphasized consolidating the program, narrowing ADB’s sector focus, and proactively addressing portfolio performance problems.



54. ADB’s PNG Country Assistance Program Evaluation (CAPE), conducted in 2003, summarizes ADB’s historical record in PNG by noting that ADB has supported the right development areas, but failed, because of fragmented programs, to deliver development outcomes at the sector level. Where projects delivered tangible outputs, these were isolated and not sustained. ADB’s program in PNG was slow to address key crosscutting constraints relating to the machinery of government problems, such as resource allocation and system maintenance. The CAPE noted the importance of PNG Government commitment to reforms, the limitations of applying conditionality, and the difficulty external partners face in assessing the depth of commitment and whether it can be sustained. This point was subsequently illustrated by the difficulties between ADB and the Government over the release of the second tranche of a public service program loan, which was eventually cancelled in 2005. Completed prior to the release of the MTDS, the CAPE suggested that more work is needed toward building demand for and ownership of reforms for good governance in PNG. It also recommended that ADB develop a more focused program with internal synergies.



55. In terms of project design and administration, the 2003 CAPE notes that developing new, complex systems and procedures for PNG is unsustainable and often unnecessary. In most cases, adequate systems are already in place. The challenges relate to ownership, implementation, and addressing noncompliance. ADB needs to simplify project design, adapt design to PNG circumstances and pay more attention to monitoring project implementation and advising project executing agencies (EAs) on project administration issues. The CAPE notes that projects perform better when the EA is experienced and familiar with ADB project-implementation requirements. A specific recommendation is that appropriate management arrangements for projects promoting PSD need further exploration.

B. Portfolio Performance and Status

56. Projects and programs in PNG have performed poorly over the years, relative to those of other ADB developing member countries, in terms of both project delivery and development outcomes. This is true notwithstanding improvements in the past 12 months. Key portfolio indicators are summarized in Appendix 9. Historically, major problems in portfolio implementation have included (i) delays in the timely commencement of new projects because of problems with the initial provision of counterpart staff and funds, lack of progress with detailed design work, and/or delays with early consultant selection and procurement tasks; (ii) counterpart funding contributions not being forthcoming; and (iii) poor performance of EAs in meeting ADB project-administration requirements. A result has been negative net resource flows in many recent years. Aware of these portfolio performance problems, the 2004 Country Portfolio Review Mission (CPRM) initiated and agreed with the Government an action plan to address portfolio issues. This process has continued, with Government support, in 2005 and 2006. Findings from the March 2006 CPRM and action plan are important inputs to the formulation of this CSP.



57. Encouragingly, the 2006 CPRM found significantly improved portfolio performance, both from closing poorly performing projects and from real improvements in the Government’s project implementation. Improved provision of counterpart finance from the Government and better performance by EA personnel were noted. The proximity and enhanced mandate of ADB’s PNG Resident Mission is also helping the Government to address constraints as they arise. It is clear that working with EAs that have a history of managing ADB projects helps portfolio performance, and remaining engaged in a sector or thematic area for an extended period delivers better, more sustainable results. The PNG loan and TA portfolio is nevertheless likely to continue to face challenges, as long as the quality of public administration in PNG remains weak. Portfolio performance will therefore need concerted attention from Government, with ADB support, during the period of this CSP. Ongoing project administration training for PNG officials is one specific action required.



58. An established success for ADB in PNG has been its support for developing a sector-wide approach to health. More recently, progress has been made by PNG in the following areas, with ADB support:

    (i) PFM (supported by the FMIP and ADB participation in PERR review missions),

    (ii) rehabilitation of rural feeder roads in the Highlands (supported by ADB loan 1709-PNG),²,

    (iii) private sector provision of agricultural extension services (supported by the Smallholder Support Services Project),³

    (iv) provision of rural microfinance (supported by the Microfinance and Employment Project),⁴ and

    (v) the development of the nucleus agro-enterprises model (notwithstanding management problems that prompted the closure of the Nucleus Agro-Enterprises Project).⁵

C. Ongoing and New ADB Strategy and Program Commitments

59. ADB’s program in PNG has been moving toward finer focus in recent years, with the sectors of transport (road and maritime) and health (including HIV/AIDS) and the themes of PFM and PSD featuring prominently in the most recent CSP update (2005-2006), along with project preparatory TA for the PNG Gas project⁶. Ongoing projects are also found beyond these sectors and themes (e.g., in provincial towns water supply, microfinance, skills development, and coastal fisheries). Two projects were prepared on (i) adult literacy and (ii) gender and population but have not proceeded due to PNG decisions not to borrow for those purposes. The closure of nonperforming loans and TAs has brought the ongoing portfolio to a smaller set of activities capable of being more effectively monitored and supported. A list of current and planned ADB activities in PNG is in Appendix 10.



60. Assuming that the project proceeds on a commercial basis, proposed ADB support for the PNG Gas Project would be one of ADB’s most significant investments in the country. The investment is being prepared in parallel with this CSP and is consistent with it. Most important among the benefits to PNG from this significant project are the large revenue flows to national and provincial governments and landowner groups. Other benefits include jobs and service contracts, access infrastructure, and health services built for the project. Related downstream investment, including those in onshore value-adding processes, are also under consideration.



61. An innovative Asian Development Fund (ADF) grant project HIV/AIDS Prevention and Control in Rural Development Enclaves⁷ was approved in April 2006. This project will work closely with major private sector employers in PNG and is likely to be active in a number of geographic areas in which ADB will be involved through other components of the CSP (e.g., PNG Gas Project sites, transport hubs and corridors, and agricultural plantations).



62. ADB is exploring private sector operations in PNG but has yet to commit to any. Trade finance facilitation has been offered to a PNG commercial bank but is not required at this stage.

D. Conclusions and Lessons for the CSP

63. The CAPE and lessons learned from the recent and ongoing portfolio suggest that Government ownership of a credible development plan is crucial to success for PNG and for ADB in PNG. For ADB, a continuation of the recent approach of consolidation and more intensive management of a modest portfolio of projects and programs is appropriate to current circumstances in PNG. This will allow ADB to focus on MTDS priority areas, in which PNG Government ownership is apparent, and to deepen ADB’s engagement toward consensus on resource allocation, capacity development priorities, and specific results to be achieved. Fortunately, recent good progress in the portfolio in some MTDS priority areas provides a valuable platform of success to build upon. Where appropriate, supplementary financing can be provided in successful areas to utilize existing delivery mechanisms and further enhance the results achieved to date. Simple and robust project design with clear arrangements for EAs is critical.



64. As highlighted by the CAPE, sustained success will require careful attention to sector and thematic policy and institutional issues as well as to the basics of project preparation and



65. Effective policy dialogue with the Government also requires good coordination and consistency with PNG’s other development partners. Relations with Australia, PNG’s largest development partner, are important for ADB and the Government. Three key donors (Australia/Australian Agency for International Development [AusAID], ADB, and World Bank) have a joint commitment, shared with the Government, to better coordinate policy advice to the Government. The European Commission and other development partners are being brought into this partnership where possible.

Back II. The Government’s Development Strategy	Next IV. Strategy For ADB Support To PNG