Country Strategy and Program 2006–2010 - Papua New Guinea

VI. Risks And Performance Monitoring And Evaluation

Most important among the risks to this CSP are that the PNG Government may fail to maintain its focus on implementing the MTDS, Medium Term Fiscal Strategy, and/or Medium Term Debt Strategy, upon which this CSP is based. This risk may arise through political instability, especially in the lead up to the 2007 national elections, or as a result of a significant shift in policy or economic direction after the elections. However, policy directions set out in the MTDS are widely accepted in PNG and therefore considered to be robust, so any changes after the elections are most likely to be in the nature of fine-tuning rather than a significant redirection. A greater risk is that budget prioritization does not follow MTDS priorities or that fiscal discipline is lost, with consequences for the economy and debt management. This risk could also be expected to lead to deteriorating PNG Government performance in meeting its counterpart financing contributions to ADB-supported projects, negatively impacting project implementation. An appropriate response to the emergence of significant issues regarding these risks would be to bring forward the CSP update process and, if necessary, review project financing arrangements. Discussions with the Government could lead to a further contraction of the new lending program and/or a review and possible reduction, or rescheduled implementation, of the ongoing program of support for PNG.

A related risk, though with less severe consequences, is that expenditure redirection to MTDS priority areas by both the Government and its development partners will be achieved, but that the implementation of priority sector and thematic objectives does not meet expectations because of weak management or capacity in the responsible PNG Government agencies. This is a very real risk, given capacity constraints and the deterioration of infrastructure and service delivery in PNG in the past two decades. In addition to sustained attention to program implementation by all parties, progress will need careful monitoring through robust performance measurement frameworks that are to be developed by the Government with AusAID support but are not yet a reality. A key requirement on the PNG Government side will be to continue recent efforts to strengthen relationships and cooperation among central Government agencies and the line agencies responsible for program delivery. More broadly, another key step will be to further strengthen sector-wide approaches and regular dialogue between the Government and its development partners—and to implement these approaches where they not currently in place. Given likely significant and increased resource flows from the Government and development partners, the transport sector should be a particular priority in these efforts.

The risk that ADB will not be able to deliver on its commitments in the CSP for lack of financial or human resources is not considered to be significant in the foreseeable future. The financial resources required are not significant; indeed, significant headroom exists if PNG decides it wants and is able to increase OCR borrowing. In addition, the possibility of local currency borrowing related to a domestic capital market issuance by ADB would increase the total resources available for the program. Consolidating and further extending the capacity of ADB’s PNG Resident Mission is key to ensuring sufficient ADB human resources to work with the Government to implement a successful program. ADB management is committed to the objective of strengthening capacity in the PNG Resident Mission within ADB’s overall administrative budget constraints.

Given PNG’s high degree of openness to world markets, the major macroeconomic risk during the CSP period is a significant adjustment in PNG’s terms of trade. This would be most likely to occur through a decline in the currently high prices of its key commodity exports: oil and gas; minerals; and agricultural products such as coffee, cocoa, and palm oil. In addition to slowing PNG’s economic growth, such an adjustment would affect Government revenues and put pressure on recently improved PNG contributions to priority development expenditures. A potential consequence would be reduced provision of counterpart finance for ADB programs and projects. In this event, an appropriate ADB response would be to review and possibly reduce or slow down the implementation of the new and ongoing program of support for PNG.

The general approach to managing for development results in this CSP is described in sections II.B and IV.D above. An immediate requirement will be for the Government to implement its commitment to putting in place its own performance-assessment framework, drawing on assistance provided by AusAID, but also with ADB support if requested. Once this is done, ADB and the Government should review the indicative results framework provided in Table 3 of this CSP.

In line with ADB’s Practice Note on Results-Based Country Strategies and Programs [ PDF ]¹, and the recent focus of the Government and ADB on improving portfolio performance, the role of the annual CPRM and the action plans arising from it will be expanded to focus on outputs and results, in addition to inputs and progress indicators. The CPRM, which is conducted annually and led by ADB’s PNG Resident Mission, will become the central process for managing the implementation of the CSP and will involve a range of country team members. Specifically, in addition to addressing major portfolio implementation and administration issues, the CPRM will expand its focus to assess whether ADB projects are contributing to the achievement of CSP objectives and to review progress against the CSP results framework (Appendix 1), with a specific focus on the milestone indicators provided therein. If necessary, the current or forward program, or the results framework itself, will be amended as a result of CPRM findings. Key issues for policy dialogue with the Government will be identified and addressed during and following the CPRM.

In addition to this annual process, the lessons learned through the annual CPRM process will be further considered and responses identified in a midterm CSP update.

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ADB. 2005. Practice Note on Results-Based Country Strategies and Programs. Manila.

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V. ADB's Assistance Program

Appendixes [ PDF ]